Fine-Tuning Your Company’s Compensation Strategy
Fine-tuning your company’s compensation strategy
A goal for any business should be to provide equitable compensation. 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, such as economic changes or the rise of a significant 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 may make it difficult to directly compare position responsibilities in the market and get reliable salary comparison data. However to achieve and maintain external equity, you must consider the going market rate. If employees believe they can receive better pay for doing the same job elsewhere, they may have less 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 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 normally applies to less experienced staff, the maximum is typically the rate for “star” employees and industry veterans, while 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. Contact your financial advisor for help with your company’s specific needs.