Last time we talked about establishing your pay philosophy. Once you’ve done that and have committed it to paper (to be periodically updated) the next step is to understand the market so you can develop pay rates for each of the positions you identified in your workforce plan.
There are several ways to do this. You can speak to other people within your industry to learn what they are paying, or you can search sites such as Salary.com, Glassdoor, or the Bureau of Labor Statistics for salary information, or you can use a salary survey such as PayScale. As you look at salary information, determine a salary range to use. You could use the median or 50th percentile, or you could establish a range, for example 25th to 75th percentile. This will help you decide on your own pay ranges. And remember, you need to consider your budget as you are making these decisions.
Make sure that your compensation plan fully complies with state and federal laws and regulations. This includes classifications such as exempt and non-exempt, overtime pay, independent contractor regulations, required benefits such as health insurance and Worker’s Compensation, minimum wage laws, etc.
Another component of your compensation plan is “pay for performance.” How and when will you reward employee performance? Will you use rating and rankings to determine salary increases or will they be determined purely on the basis of individual performance? Will performance reviews and salary increases happen in concert or separately? Will you have a discretionary fund for employee incentives and what are the criteria for those awards?
Once you’ve developed your compensation plan, it’s important to communicate it to your employees. Explain that salaries are based on market rates, pay philosophy and employee performance. Discuss total compensation – that is, base salary, incentives and benefits. Employees who have a clear understanding of how they contribute to the success of the organization and who feel recognized for that contribution are more engaged and motivated. Everyone wins.
If you need some help understanding the market for your job positions, or selecting a salary survey to use, please contact me.