Employee compensation shouldn’t be rocket science, but the wrong strategy can leave you scrambling. As business owners, we tend to overreact to emotional appeals for raises and overpay at the end of the year when it’s time to hand out bonuses. You can avoid situations like these by instituting a thoughtful, well-planned compensation strategy.
Types of Compensation Strategies
When you’re confident in your employee compensation strategy, you won’t feel backed into a corner when an employee asks for a raise they don’t deserve or threatens to quit over their pay. Offering competitive employee compensation strategies that suit the job description allows you to remove emotion from the equation and focus purely on the employee’s performance.
Here’s what you need to remember when determining your employee compensation plan.
- What’s your budget? You can’t pay what you don’t have. Underpaying employees is not a good strategy if you want to acquire and keep good employees. It’s better to hire fewer employees but pay them well than to spread your finances too thin.
- What are jobs currently worth in the marketplace? Your geographic location will play a role in your employee compensation. You can determine salary bands for each role at your company by researching what similar roles in your area are making. Include a lower band for employees with less experience and a higher band they can strive for over time.
- What are your competitors paying? You don’t have to match your competitors’ salaries if you know your offerings are fair, but doing your research is still a good idea. If your competitors offer better pay, you may lose people to them. On the other hand, you might attract your competitors’ best talent by offering higher wages.
- What can you offer in addition to money? Many small businesses are initially strapped for cash, but base pay isn’t the only way to compensate your employees. An excellent benefits package can often make up for a lower salary. Consider generous PTO offerings, stock options, wellness programs, reimbursements, and more.
- How will you handle raises? Giving raises yearly will eventually price employees out of their competitive marketplace value and above their salary band. Instead, you might want to opt for performance-based pay. This ties employees’ raises to their success throughout the year and rewards them for achieving their goals.
Another thing to consider is when to re-evaluate an employee’s compensation. Although uncommon, scheduling performance reviews at a different time of year than compensation reviews is a good idea.
Disconnecting these two reviews allows you to evaluate an employee’s performance more objectively. Salary discussions are often tense and can be emotional. It’s easier for employees to hear positive and negative feedback when it doesn’t feel like their livelihood is on the line.
Taking the time to fine-tune your employee compensation strategy can make a big difference in how you attract and retain talent. A business coach can help you get it right. If your business needs an improved employee compensation strategy, you can schedule a complimentary video coaching session with an expert here.
Coach Dave
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