Avoid these pitfalls when setting compensation for your employeesAvoid these pitfalls when setting compensation for your employees
How do you know that what you're paying your employees is enough to attract and retain the best workers, while not sinking all your profits into personnel? Beware of the flaws in these common tactics for determining compensation.
January 23, 2015
If you're like most businesses, payroll is your largest expense. How do you know that what you're paying your employees is enough to attract and retain the best workers, while not sinking all your profits into personnel?
In trying to find the answer to this conundrum, small-business owners need to be wary of several pitfalls.
1. Scanning the internet for salary data
There is no end to the salary data you can find online, and this seems like a fast, cheap method to compare what you're paying to what others are paying. While it is true that there is some potentially good and useful data depending on your size, geographical location and industry, caution should be used with some of the free, self-reported data sites. Namely, how reliable and recent is the data? "Self-reported" can easily translate into "wishful thinking".
Then there is the issue of knowing whether someone who has the title of "supervisor," for example, manages the products, or the people. Do they have 100 direct reports or none? Are they reporting from Milwaukee or Manhattan? The answers to these questions could lead you to drastically different salary amounts.
2. Calling around to your local competitors to find out what they're paying
This may seem like a very easy and cost-effective way to find out if what you're paying is competitive. However, the Sherman Antitrust Act of 1890 was created to keep businesses from price fixing, and there have been cases of employers found guilty of this by sharing salary data. A joint statement by the DOL and FTC meant to interpret this act states that to not run afoul of this Act, the following conditions need to be satisfied:
The survey is managed by a third-party (e.g., a purchaser, government agency, health care consultant, academic institution, or trade association);
The information provided by survey participants is based on data more than 3 months old; and
There are at least five providers reporting data upon which each disseminated statistic is based, no individual provider's data represents more than 25% on a weighted basis of that statistic, and any information disseminated is sufficiently aggregated such that it would not allow recipients to identify the prices charged or compensation paid by any particular provider.
3. Not factoring in benefits
Most places of work do not only compensate their staff with base pay. So when you are looking at salary data, consider the value of the benefits you offer and whether or not they are competitive in the marketplace as well. You know your workforce demographic best, so be sure to consider if better health insurance, more paid time off, or a bonus program would be more valuable than more base pay.
What to Do?
If you know you're having problems filling positions, or finding the right people for particular jobs, or you can get them in the door but then they are soon back to work for a competitor, or you need to keep your personnel costs down, it may be time to consider conducting a salary survey. Whether you do that in-house using on-line resources, or contract with a third party, be sure you are getting data that is relevant to your particular business, and that you can trust.
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