The fair way to set employee salaries

July 16, 2009: 12:39 PM ET

Not sure if you're underpaying or overpaying? Third-party salary surveys can help.

Thomas, San Francisco
I have a video production company with five full-time editors. I'm always stressed thinking I'm either overpaying them and I'm going to go broke, or underpaying them and am going to lose them and/or they're going to get resentful. Because of this, I realize I manage them nervously, which is not good management. How does one determine pay parity? I would like to pay them fairly so I can stop worrying and pay and manage them with confidence.


By Rose Fox, CNNMoney.com contributing writer

There are plenty of resources out there for both workers and employers who want to make sure that staffers are getting paid neither more nor less than they're worth.

To start with, look at free sites like Salary.com, PayScale.com, and CareerBuilder's CBSalary.com. You can also check the Bureau of Labor Statistics site at bls.gov. For more in-depth data, consider purchasing reports from survey companies that do research in your field. Salary surveys exist for almost every industry. Amy Kaminski, manager of marketing programs for Compdata Surveys, suggests sticking with surveys that get their data from employers: "This will help ensure the accuracy and reliability of the results."

Look for data that's applicable to the type of business you run as well as the type of employee you want. Ted Turnasella of WageLINK.net offers three helpful rules of thumb:

1) Make sure that the job being reported is a match for the job at your company. A good rule of thumb is for the job summary in the survey to represent at least 75% of the duties being performed by employees in the company.

2) Look at the effective date of the data and adjust it for the passage of time. For example, for data that is several months or years old, factor in an annual wage inflation rate of 3%.

3) If the data you are using is national data, it will need to be adjusted to your local market. Salaries in New York City are much higher than those in Brownsville, Texas.

Once you have all that information, consider how it applies to your company, factoring in regional and personal differences that may not be reflected in the numbers. "If a good editor is difficult to find, you may need to pay above market in order to keep these key employees," Kaminski says. "On the other hand, if you offer valued benefits such as flexible hours or above-average health insurance, you may be able to pay at or below market while still keeping your employees happy."

Jennifer Grasz, a CareerBuilder spokeswoman, agrees that soft benefits can matter as much as cash. "Companies are looking beyond salary and incorporating more flexibility into their packages to stay competitive in their recruitment efforts," she says. "For example, we see more companies offering telecommuting opportunities, compressed workweeks and other alternative work arrangements."

Finally, if it becomes clear that a current employee's salary needs to be renegotiated, don't be shy about showing them the numbers that helped you to reach that decision. "Salary market data moves any pay discussion onto a less confrontational footing," says Dr. Al Lee, director of quantitative analysis for PayScale.com. "Yes, your employees may still look for work elsewhere, but it won't be higher pay that draws them away."

Give us your advice: Check out recent "Ask & Answer" questions.

How to keep laid-off workers honest

Fair pay for you and your partners

What to pay the boss's bosses

Join the Conversation
Search This Column
View all entries from this: Week, Month
Powered by WordPress.com VIP.