Secrets to Setting Salaries

Determining what to pay your employees is more than just a numbers game. We talk to the experts to find out what's involved and how to best decide on compensation.

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Advantages and Considerations

Putting a price tag on a staff job can be a lot harder than pricing products and services. When setting salaries at your small business, there are several things you need to take into consideration.

“First you need to identify how many employees you need,” said Athar Siddiqee, Strategic Client Relationship Executive for “You need to figure out what you can afford and how that compares to the market. Also, how do those salaries compare to other salaries in your business. As much as you’d like to believe salaries are confidential, you want to ensure there will be internal equity.”

Siddiqee shared a good analogy. “I always like to imagine that if the salaries of everyone at a business were printed on a spreadsheet and it was left on a table in the middle of the office, how damaging would that be? If you did the right thing, that would be far less embarrassing of a situation. To me it’s a lot about ensuring that not only are your salaries competitive but they are also fair.”

Another thing to keep in mind is that when it comes to salary, it’s a total package, according to Roberta Chinsky Matuson of “Really what you want to do is you want to know what your employees value most. You might have a population that really values time off. They might be willing to make less money knowing they’ll get more vacation time. Some may value having their healthcare paid at a higher percentage as opposed to the taxable items like salary. You really need to know what it is your population values. You may be throwing money in the wrong direction.”

Once you figure out all of the details, it’s time to set the salary. The first piece of advice Chinsky Matuson recommends is to stop trying to buy people on sale. “What’s happened in this economy is because people are so desperate to find jobs, they are willing to accept lower salaries,” she said. “But what happens when you get into those situations is that people say they’ll accept it and they eventually get tired of it. Pay what you can afford to and don’t worry about the fact that you could have gotten them for a dollar less an hour. A long-term employee will be worth a lot more than that. Compensation is an art, it’s not a science.”

Small business owners oftentimes cannot afford to pay as high of a salary as a large corporation, but as Siddiqee explains, it’s about more than just compensation.

“I accepted an assignment at a previous employer and moved to India,” he said. “At the end of that stint, I had worked with all of the different aspects of compensation and was getting so much experience. I didn’t get one salary increase during that time. But that was really insignificant to me because it was more about the opportunities that allowed me to grow and develop. That to me was something that my employer could provide that I couldn’t get anywhere else. I was completely engaged. I was learning a lot. It was about feeling that the company was investing in me. If a small business owner can find the key to that engagement and allow their employees to wear many hats, that will often require less of a financial investment and the employees will feel they are gaining a lot.”

Chinsky Matuson added that business owners should be careful who they are getting advice from because oftentimes we tend to listen to what we want to hear and not what we need to hear.

“You can really get caught thinking that you’re doing the right thing, yet in the real world that is so far off. Talk to other people; don’t just talk to your five buddies. You’re competing with large companies, non-profits, and their families. You’re not just competing with other small companies for these people.” —Lynn Celmer

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