Setting Pay Levels for Your Employees

Question: My business is finally growing and I'm now hiring employees. But deciding what to pay is a dilemma. I want to be competitive so I can attract and keep good people, but my budget is limited. And I want to avoid overpaying, too. Where can I find guidance?

Answer: Setting pay levels for employees in a small business is one of the most important decisions you'll face. You're stuck with the benchmark you set from the beginning as long as that employee stays.

There are many factors to consider. The first thing many new employers look at is what someone made in a previous job. But that's rarely a good measure. Pay should be based on what the person will be doing in the new position, not what they did before.

You'll also need to decide how crucial each individual employee is to your business. Some people can be easily replaced. Some you may consider valuable - others indispensable. You'll want to pay your most valued employees more.

Try establishing a low, mid-range and high pay level for each position you have. Starting someone at the low end of the range provides room for you to offer increases in the future.

You can also find or conduct a "salary survey" to determine standard pay levels for the types of positions you have. Web sites such as Salary.com and SalaryExpert.com offer free basic search services, as well as detailed salary surveys for purchase. But since pay levels can vary greatly by region, you're better off asking locally what other employers are paying for similar positions.

No matter what salary surveys say, however, the bottom line for you is affordability. You can't pay more than your bank account can bear.

When Less is More

But don't worry if the pay you offer is less than what larger companies pay. That's typical for small, growing businesses. Keep in mind that salary is just one part of what employee's gain by working for you.

As compensation experts at Salary.com point out, small employers offset lower pay with benefits such as:

• Frequent contact with top management.
  
  
• A greater sense of personal involvement.
  
  
• Broader experience and more opportunity for on-the-job learning.
  
  
• A job more tailored to an individual's talents.
  
  
• Faster promotion.

Offering a lower salary along with incentive payments - such as year-end bonuses, commissions or profit sharing - can help attract employees who have an entrepreneurial mindset similar to your own.

Salary Levels Rising

According to OfficeTeam, an administrative staffing firm, pay levels for skilled office workers are headed up an average of six percent next year. "As hiring picks up, companies are boosting salary levels to attract the best candidates," says Diane Domeyer, executive director of OfficeTeam.

Tech skills are especially in demand. In the healthcare field, for example, salaries are soaring. Starting pay for medical secretaries, for example, is expected to jump nine percent in the next 12 months. Office and facilities managers will also see starting salaries rise nearly 10 percent, says an OfficeTeam survey based on thousands of job searches.

These resources can help you find and keep the right salary levels for your business:

• Salary.com offers a helpful "Salary Basics" section that you can access free in the "Advice" section of its Web site. You'll find detailed discussion of pay philosophies, salary structures and job descriptions. The Salary Wizard lets you compare salary information for thousands of job titles, at no cost. Yahoo!'s "Hot Jobs" site (salary.hotjobs.com) has the same tool. Salary.com also offers small business salary survey reports for purchase. Visit www.salary.com or call (866) 694-7911.
  
  
• Monster.com, the giant jobs site, has a "Salary Calculator" that lets you compare local and regional salaries for different jobs. Look in the "Salary Center" section of the Monster site.
  
  
• Business & Legal Reports (BLR), based in Old Saybrook, CT, produces "plain-English" business compliance and training guides on a wide range of human resources topics, including salaries. BLR's "Salary Search" CD-ROM ($199) is a quick guide to setting fair and competitive salary levels for almost any job. Visit www.blr.com or call (800) 727-5257.