A lot of us are uncomfortable talking about money. However, those conversations are necessary as your business grows, especially when keeping employees engaged or adding to your team.
Your payroll expenses are going to be one of your highest operational costs. In fact, while experts agree that payroll should not exceed more than 30% of your total operating costs, it can be more like 50% for some companies.
It’s equally important to your staff. Studies show that almost 70% of job seekers list salary and benefits as their top consideration when looking for a new job.
Clearly, compensation planning is important. You need to make sure that you pay your employees fairly and competitively while still making a profit. It’s a balancing act, and since money conversations can become emotionally charged, you need to be armed with the strategies and tools to face this head-on.
Of course, compensation is just one area of human resources. At Support Panda, we believe that everything – from how you pay your employees to your policies – should be aligned. So if you’re ready for a unique approach to human resources, let’s set up a call here.
In the meantime, let’s answer your top questions about compensation.
How do I know if I need to change my existing compensation strategy?
How can you spot a problem with your existing compensation strategy? First, ask yourself: Do we have a strategy? Does my strategy align with our goals and corporate culture? Am I having a hard time retaining my star employees? Is it challenging to recruit the talent that I need? If the answer to either of the last two questions is yes, you may have a pay problem on your hands.
This is especially true right now, as we face the very real ‘Great Resignation.’ It is a job seeker’s market, so you must be competitive within the market.
How should I set a pay rate?
First, decide if you will be paying below, at, or above the market average. Suppose you pay below the market average (which sometimes happens because of budgetary reasons). In that case, during the recruitment process, you will need to highlight and provide context to other benefits that you give to balance this.
Each company’s situation will be different. However, there are some guidelines that you can follow.
Start with a good outline of each role and its responsibilities. Clear job descriptions, including context to ownership and impact on organizational goals, will show you where your money is best invested.
You will need to have context to the range you are willing to pay. Consider the market rate for the position you are trying to fill by either speaking to an HR Consultant who has access to third-party surveys. These tend to be far more accurate and impactful than resources online like PayScale or Glassdoor. Another option is to reach out to competitors directly and talk payscale. We’re all in the same boat and sharing data benefits everyone.
There are different types of pay, including salary, bonus program, and commissions. You’ll also need to consider things like benefits and paid time off. The goal is to balance what you can afford and what the role is worth to your company.
Of course, you’ll want to speak to your fractional CFO or finance professional, if you have one, about how your pay rates will impact your financial position, as well as to review any hidden costs like remittances if this is your first hire.
How often should I formally review salaries?
This also varies from company to company. However, most experts (including myself) agree that you should review salaries at a few important junctures.
- Within 6 months of a new individual starting a role
- Within 6 months of a new role being implemented within the organization
- At the same time as any departmental reorganization
- Anytime the market is showing drastic changes
The important thing is to discuss compensation and regularly communicate to your employees. Frustration tends to creep up when people do not know what to expect, so address questions head-on. The more you talk about a topic, the less awkward it gets and the more reasonable it feels for employees to ask for what they need.
I’m a start-up. How can I compete with [insert big name]?
When it comes to monetary compensation, you have to decide where you want to be in the market. If you want to compete with Amazon, you have to know going into growing your team, that the costs will be higher. If you are not able to compete with large companies, don’t try. You want to create an employment experience unique to you so focus on what those large organizations can’t offer.
So when it comes to monetary compensation, do your homework.. Look at what other comparable companies are paying, in terms of size, location and industry.
How do I communicate that I simply cannot compete on higher salaries or significant pay raises?
I function best through honesty and transparency. Help your employee understand your compensation philosophy and how you arrive at the decisions that you make. If they appreciate where you are coming from, they may understand better if you can’t give them the raise they hoped for.
Since the pandemic began, a growing number of people place a high value on flexibility and paid time off. So if you cannot be a high competitor from a base salary standpoint, focus on the other things that attract happy employees. Return to your company values and work towards creating some benefits and perks that reinforce those in practice.
The important thing is to demonstrate and communicate that your employee is a valued member of the team and show them their impact on the business.
What about commission-based compensation?
Commission-based compensation can be a great way to incentivize employees and increase their motivation. First, however, it’s important to make sure that your employees are actually capable of earning commissions. There is nothing more disheartening than an unachievable goal or an unlivable base salary.
Compensation Conversations Made Easier
Money is a touchy subject for many people, and compensation conversations can be difficult. However, they don’t have to be.
With a strong compensation strategy and professional support, you can feel more confident in your ability to make fair and equitable decisions when it comes to compensation.
If you’re still feeling overwhelmed, don’t hesitate to book a call and reach out for help. We would be more than happy to talk to you about building or refining your compensation strategy.