Salary management is an essential human resources issue, and one that many HR professionals find challenging. Recruiting and retaining the best talent is essential to success, but salaries and pay scales must also stay within a company’s budget. Finding a balance can be tricky—here are a few tips on setting up a company pay scale.
The best way to begin building a compensation plan is to use industry salary data as a benchmark. An HR professional can do this by consulting online databases that record median wages by sector—the U.S. Bureau of Labor Statistics provides industry-specific wage information, sorted by occupation and location across the country.
Similarly, there are many websites online that provide salary information. It’s also helpful to check out a competitor’s compensation plan. If an HR representative is looking to hire a new accountant, for example, he or she can look at job descriptions and salary information at large accounting firms. This will give a hiring manager a figure to reference when creating a fair payment plan.
Establish Employee Value and Fair Compensation
Once an HR professional has a general idea of salaries in the field, it’s time to evaluate a role and how much a candidate or current employee will bring to the company. Entrepreneur recommends that HR representatives ask themselves how much value a new hire will add to the organization.
For example, at a sales-based organization, an HR representative can tally up the potential revenues a new hire would bring in. If a salesperson is projected to bring in $300,000 for the company in his first year, a salary of $70,000 per year would fall short of candidate expectations and would likely result in a job offer being rejected by a candidate.
Companies should think of good hires as an investment and establish a benchmark for the highest amount they are willing to pay. Linking fair compensation to abilities and capacity to grow makes it much easier to weed out candidates who are asking for a salary far surpassing the benchmark, while still allowing companies to offer a competitive rate.
Evaluate Candidates and Employees
A good candidate will not only bring talent to an open position, but also knowledge and experience gained from previous jobs. An applicant who will be able to fulfill the needs of the job, as well as offer leadership and training for future employees, may deserve higher pay than a candidate who is new to the industry.
Current employees should also be regularly evaluated to determine fair compensation. It is essential for companies to keep an eye on industry trends, because employees are likely doing the same. No matter the level of company loyalty, if an employee sees that a similar position at a competing company offers $10,000 more per year than his current job, that employee may leave the company. Regular raises and annual salary adjustments for inflation are both part of a smart salary management plan and help keep talented individuals around.
Consider Position and Requirements
Deciding how to pay employees may be just as important as determining a salary. There are many things to take into consideration, such as whether an employee will be paid hourly or by a fixed salary. Some companies, particularly those based in sales, offer commission rates. Yet this same plan may not be the best fit for an administrative position.
Other positions are better suited for hourly wages, such as those in retail or for temporary workers. On the other hand, this pay scale would likely not benefit a company where staff members routinely work overtime at their own discretion—under the guidelines of the Fair Labor Standards Act, employees must be paid time-and-a-half their hourly rate for any work past 40 hours per week.
In order to navigate the complications of payroll processes, many companies have begun using HR payroll software, which streamlines the payment process and keeps accurate records, making life easier for HR professionals at any company.