Carolee Colter
Carolee Colter

3 aspects of managing your personnel expenses

Living wages. The rising cost of health care. Shrinking profit margins. More big-box competitors. There are many forces acting on the personnel line item in any small business budget these days. We know we can’t do it all, but where to begin to ensure you are getting the best return on your personnel dollars spent?

Compensation philosophy

This document can be your guide post for making decisions about how to structure your compensation package. A good philosophy should be like a mission statement for how and why you compensate people. Take some time to think deeply about the problems and successes with the current compensation package, and what will be needed for future success.

Where are you having problems with recruitment or retention? How do staff feel about your compensation package? Which benefits are sacred, and which aren’t as valued? Getting to the bottom of questions like these, and focusing on your values as a business, can help point you in the direction of what you are trying to achieve with your compensation package.

Compensation studies

The only way to ensure you aren’t over or underpaying for any positions is to see what others are paying. This could include calculating a living wage for your area. Using external data is also a good way to set pay ranges in an unbiased and objective manner. Even if you can’t afford to pay what the market is paying, knowing where the market is—and emphasizing the more intangible benefits of working for your business—may help you get the quality of applicants that you need to be successful.

Pay scale review

Even when you know what the market is paying, it’s important to consider internal equity—how the pay ranges for the various positions relate to one another. Are they all equally wide, and do you want them that way? How much of a bump does someone get if they are promoted into a higher level position, and is that enough to encourage internal candidates?

Personnel is usually the single biggest line item in a small business’ budget. The cost of getting things wrong is high. Take the time to think through all of these aspects to ensure you are getting the best return on your investment!

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