As a business evolves, so must its compensation strategy.
Hopefully, your company is growing — perhaps adding employees or promoting
staff members who are key to your success. But other things can spur the need
to fine-tune your compensation strategy as well, such as economic changes or
the rise of an intense competitor. A goal for many businesses is to provide
equitable compensation.
Do your research
One aspect of equitable compensation is external equity; in other
words, making sure compensation is in alignment with industry or regional
norms. The U.S. Department of Labor and Bureau of Labor Statistics have a
wealth of comparable data on their Web sites (dol.gov and stats.bls.gov,
respectively). You might also consult with a professional recruiting firm, some
of which offer free or low-cost compensation data.
Granted, job roles within smaller companies make it difficult to
directly compare position responsibilities in the market and get reliable
salary comparison data. A company’s degree of competitiveness and ability to
pay what the market bears can also be challenging.
Yet, to achieve and maintain external equity, you must consider
the going market rate. Especially in a business where employees believe they
can receive better pay for doing the same job elsewhere, workers have little
incentive to remain with an employer — therefore, you must be concerned with
external equity.
Pinpoint a range
From both a marketplace perspective and an internal company
viewpoint, it’s important to group together jobs of similar value. This also
gets at the concept of internal
equity, which essentially means that employees feel they’re being paid fairly
in terms of the value of their work as well as compared to what others in the
company who have equivalent responsibilities are paid.
Once you’ve grouped jobs together, develop competitive salaries
around the market rates for those positions. A typical salary range consists of
a minimum, a maximum and a midpoint (or control point).
The minimum is the lowest competitive rate for jobs within that
range and normally applies to less experienced staff. The maximum represents
the highest competitive rate for jobs in a given range. This is typically a
premium rate for “star” employees and industry veterans.
The midpoint represents the competitive market rate for fully
performing workers in jobs assigned to that range. Think of it as a guideline
for slotting various positions and individuals in appropriate salary ranges.
Find the right approach
These are just a few concepts involved with establishing the
right approach to compensation. Please contact us for help with your company’s
specific needs.
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