Passing the Fair-Pay Test: Determining if Your Salaries are Competitive

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Digital Library > Human Resources Management > Compensation (non-executive)"Passing the Fair-Pay Test: Determining if Your Salaries are Competitive"

How do your salaries stack up against your competitors'? Keep your employees — and keep them happy — by comparing pay rates across your industry.

OVERVIEW [top]

According to conventional wisdom, good employees rarely quit just over money. It's always something else — perhaps a craving for more recognition, authority or excitement in their work.

Yet many entrepreneurs soon learn the cold, hard truth: Pay does matter. People will leave for a 10% raise elsewhere. That means if your employees drop hints about your undermarket salaries or your skimpy bonuses, don't rush to defend yourself or label them malcontents. First assess whether their complaints have any merit. How? Research the competition's pay rate. Monitor compensation trends in your industry. Level with your team about the financial realities of your business through open-book management.

In this Quick-Read you will find:

  • Ways to gather and interpret salary surveys.
  • Strategies to weigh cash compensation vs. other benefits.
  • Web-based tools to collect salary and compensation data.

SOLUTION [top]

With unemployment rates in the low single digits in many parts of the United States, it's risky to contain payroll costs with paltry compensation packages. It's even more dangerous for a small business to administer salaries in a static manner without considering individual job performance and incentive plans.

Monitor how other businesses pay their people. Check classified ads for pay ranges, collect pay information on the Web and network with other entrepreneurs. But beware: When talking with business owners, don't trade reams of salary data on individuals by name or job title. While it's fine to speak in general, informal terms about pay ranges, it's illegal to collude with other employers to set specific salaries.

To gather more precise data, follow these steps.

  • Study salary surveys. There are dozens of online salary surveys to help you gauge what to pay for certain jobs in certain regions. The best surveys reflect recently updated data for your geographical area that's tied to specific jobs that are comparable from employer to employer.
  • Start with WageWeb.com,SalarySource.com and bls.gov (The U.S. Bureau of Labor Statistics publishes Occupational Compensation Surveys by region; see the National Compensation Survey for starters.). Many consulting firms specialize in salary studies; shop for them at theSociety for Human Resource Management's Consultants Directory.

    Also call trade groups, professional associations and your local Chamber of Commerce. They may sell salary data to members.

  • Ask your employees. In a small company, you can talk with most, if not all, of your employees and learn how they rate their pay package. If they hear of higher salaries elsewhere, you can encourage them to weigh cash compensation vs. the benefits you offer, especially those that become vested over time, such as dollar-for-dollar 401(k) matching and four weeks of paid vacation. For more ideas on using innovative benefits to hold on to valued employees, see the Quick-Read Solution "Beyond Paychecks: Creative Ways to Reward and Retain Employees."

Prepare to mollify existing employees who complain that new hires earn more. How? Either raise their salaries to match or exceed what newcomers receive — or beef up benefits and emphasize the value of vesting. Fast-growth businesses may also provide profit sharing for employees after, say, one or two years on the job.

REAL-LIFE EXAMPLE [top]

Doug Gorman, chief executive of Information Mapping Inc. in Waltham, Mass., constantly frets about paying his 80 employees enough so that they stay put. He knows that "anyone can always leave and get a 15% raise in this job market."

But that doesn't mean Gorman simply pays ever-escalating salaries. He prefers a more systematic approach.

"We try to pay equitably across job functions," he says. "And we tie pay to job performance. That's easier with our salespeople, but we try to give everyone a chance to earn more by producing better results."

To collect salary data, Gorman relies on two sources: Instructional Systems Association (a trade group) and TEC/The Executive Committee, a CEO peer group. ISA provides its members with salary surveys, and TEC participants gather regularly to share ideas on compensation.

"At TEC meetings, we might ask each other, 'What does it take to pay a CFO?'" Gorman says.

He also holds periodic meetings with his management team to review every employee's salary. But rather than have each VP justify the salaries within his or her unit, he'll ask an executive in one division to comment on employees' pay in another division.

"I find this makes for a more objective analysis," he says. "A senior manager in one department might look over what another manager is paying one of his people and say 'This is too high.' The other manager might reply, 'It's high because this individual is a super performer.' Then we'll all look at the evidence to decide whether this employee really is a super performer."

DO IT [top]

  1. Ask your senior managers, "Who are the top three people in your unit that you cannot afford to lose?" Then confirm their pay reflects their value to the organization and exceeds the midpoint of their salary ranges by at least 5%.
  2. Use nationwide salary surveys to set executive pay; use regional surveys to decide pay for middle managers and technicians; use local surveys to determine what you'll pay hourly workers.
  3. Ask your accountant, lawyer or an HR consultant to review a list of your employees' pay packages. Solicit their opinions and recommendations.
  4. During job interviews, discuss candidates' salary history. Ask how many promotions they received in their last job and how much more they earned each time. Determine to what extent they were happy with such pay raises.
  5. Track two indirect indicators of pay: monthly attrition rates and job-applicant interest based on your advertised positions. If you notice a jump in workers who are quitting, find out why. And if resume counts are down, test new ads that either don't mention pay or include a wider, higher, pay range.
  6. When networking with other business owners over pay issues, don't limit yourself to those entrepreneurs whom you know. Identify the fast-growth companies you most admire and introduce yourself to their CEOs.

RESOURCES [top]

Books

Aligning Pay and Results: Compensation Strategies That Work From the Boardroom to the Shop Floor edited by Howard W. Risher (AMACOM, 1999).

American Almanac of Jobs and Salaries, revised ed. by John W. Wright (Avon Books, 2000).

Pay People Right! Breakthrough Reward Strategies to Create Great Companies by Patricia K. Zingheim and Jay R. Schuster (Jossey-Bass, 2000).

Rewarding Excellence: Pay Strategies for the New Economy by Edward E. Lawler II (Jossey-Bass, 2000).


Professional Associations

WorldatWork (formerly American Compensation Association); (877) 951-9191.

Society for Human Resource Management; (703) 548-3440.


Magazines

Benefits and Compensation Solutions; (203) 855-5525.


Newsletters

IOMA's Report on Salary Surveys; (800) 401-5937.


Internet Sites

SalaryList.Com

The Clayton Wallis Company designs salary and compensation software.

See Robert Half International's Resource Center to order four free annual salary guides published by Robert Half International (650-234-6000).


Article Contributors

Writer: Morey Stettner

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