In today's business landscape, it’s critical that owners and executives find ways to determine fair wages for their employees. For many small businesses, just finding qualified individuals to fill important positions has proven quite difficult. If wages aren't competitive, that level of difficulty will only increase. At the same time, overpaying is clearly not going to help your bottom line and may lead to some tough financial decisions in the future. Striking the right balance with wages that are fair to both the employer and employee is crucial.

 

Determine the wage based on the employee

For some business owners, setting a general starting wage and path to promotion across the company – or at least across lower-level positions – may seem the fair strategy, but it may be best to determine wages based on individual employees.


The 2018 Compensation Best Practices report by PayScale1 found that the best-performing organizations conducted ongoing employee research to understand the job market and retain top-performing employees. Citing this research, Professor Per Bylund of the School of Entrepreneurship at Oklahoma State University said companies should tailor a compensation package to each employee.

 

"When creating product offerings and business models, entrepreneurs excel at performing market research and personalizing offers. This mindset should carry over to employees, too," he writes.2

 

Consider what the position truly entails

When determining what to pay a specific employee, consider what their position actually entails, and try to put yourself in the mindset of what the day-to-day would look like if you were in that role. This can help you to see both sides of the coin to get a clearer understanding of what a fair wage would be. Compare it to other roles and the wages earned. How critical is this role to the company? Is the employee performing at or beyond a satisfactory level?

 

Consider how enjoyable the work environment is

Would the role offer a reasonably enjoyable work experience for the employee if money were not an issue, or is the environment one that would likely push the person away? A positive experience can go a long way when it comes to retaining talent, and money isn't the only motivating factor. However, some jobs are simply not fun. If the employee is working in a perceived negative environment, a higher wage might be what keeps them around.

 

Consider attractive benefits/perks that employees want

Workers take a variety of factors into consideration when they choose where to pursue their careers. Wage is certainly a major one, but some hold benefits and perks in just as high regard. In fact, a recent survey from business mentor network SCORE3 even found that four out of five employees prefer perks to pay raises. At the same time, 42 percent said they have no perks at all.

 

Sought-after perks include flexible hours, more vacation time, work-from-home options, student loan assistance, paid maternity/paternity leave, free gym membership, free snacks, and weekly free outings.

 

The point is that some of these types of perks can cost you less than paying higher employee wages, while still having the effect of helping to attract and retain talent.

 

Pay attention to what others in the industry pay

Try to keep an eye on what other employers in the industry pay if you can find reliable sources of this information. This will not only help you pay a wage that is fair, but it will also help you remain competitive in the talent pool. You may be able to find some useful data from the United States Department of Labor's Bureau of Labor Statistics.4

 

Figure out minimum and maximum wages you're able and willing to pay

Sit down and calculate the absolute minimum and maximum wages you're able and willing to pay. Obviously, the minimum wage in your state may dictate the former in some cases, but for more competitive roles, you'll need to come up with this number on your own. Secondly, how high are you willing to go to pay the top-performing employee at your business's current financial level and below? From there, you have to determine where on that spectrum an employee fits and where on it you expect them to go as time goes on.

 

Decide if bonuses are realistic

Employees may be more willing to accept a lower salary if adequate bonuses are attainable. Are significant bonuses realistic to your business on a financial level? If so, consider offering these as an alternative to a higher wage. Not only can they prove attractive to employees, they can also be motivating, assuming that they're performance-based.

 

The reality is that determining wages is not one of the most fun parts of running a business. You'd love to compensate everyone who works hard for your company as highly as possible, but business doesn't always allow you to do so. Figuring out wages that are fair to employees as well as to the business is a delicate balance, but an important one for business efficiency.

1. https://www.payscale.com/content/report/2018-compensation-best-practices-report.pdf

2. https://www.entrepreneur.com/article/312878

3. https://www.prnewswire.com/news-releases/four-in-five-employees-prefer-benets-or-perks-to-a-pay-raise-300670318.html

4. https://www.bls.gov/bls/blswage.htm

 

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A. Member FDIC