How Much to Pay Employees: Setting the Right Compensation to Recruit Great Staff
<div class="grey-callout"><h2>In This Guide You'll Learn</h2><p><ul><li>How to identify the competitive pay level for the job you’re recruiting for.</li><li>Why paying your staff well is good for your business.</li><li>How fair pay is linked to employees’ contribution to value creation.</li></ul></p></div>
Offer Your Recruits Market-Competitive Pay
When you’re recruiting for a job, you need to know what the market pays. If you haven’t hired anyone in a while, you’re probably out of touch with current salary levels. To get up to speed, look on a few job sites for positions similar to yours and located in your region.
Doing a market search will give you a ballpark figure for what you’ll need to offer. But you might need to adjust this to reflect the specifics of the post you’re advertising. You might need to pay a premium to get people to take a job in a start-up, in a declining industry or in an undesirable location. Pay levels fall during recessions and rise when the economy is growing; your offer will need to reflect these broader conditions.
Also be aware of other factors which can affect what you’ll need to pay:
- Competitors with plentiful resources might be paying their staff a lot, meaning that you’ll have to pay more.
- To attract good people for jobs that are in high demand, you’ll need to offer a higher salary.
- There are big pay differences in some sectors such as finance which has City traders earning huge amounts and high street bank staff on much less.
- Trainees don’t need to be paid as much as you’ll be putting time and resources into developing them.
Having done a market search and considered any adjustments you need to make you might end up with a salary figure higher than you’d anticipated. But remember that if your business has the processes in place for staff to be able to create value then Great Performers pay for themselves over and over.
You may also find that you’re not paying your existing staff enough! This might not matter to employees who aren’t solely motivated by money, but others could be on the lookout for a better-paid alternative. Take action quickly to make sure you don’t lose good people.
Pay According to Employees’ Contributions
Fairness isn’t about paying everyone the same. It’s about paying them according to the contribution they make to the achievement of desired outcomes. People in the same job might not perform equally well and those contributing more should be paid more.
This doesn’t necessarily mean offering large performance-related bonuses with a low base salary – this doesn’t tend to attract the best applicants. The same goes for the share options commonly offered by start-ups. Great Performers usually want a good basic salary topped up with a bonus to reflect performance.
Non-monetary incentives can also be really effective in attracting and retaining good staff. These can include extra holiday, flexitime, remote-working, gifts and peer recognition.
<div class="grey-callout"><h2>Key Takeaways</h2><p><ul><li>Research the market for pay levels in jobs similar to your own to ensure that your offer is credible.</li><li>You may need to adjust for specific factors: pay more to attract people to riskier jobs or to undesirable locations and for jobs that are in high demand or where competitors are paying a lot; pay less for training jobs.</li><li>Great Performers pay for themselves, so pay them well.</li><li>Pay people according to the value that they add, but don’t rely on bonuses alone. A good base salary plus a bonus for performance should strike the right balance.</li></p></div>