HR Advice

Determining Compensation Levels

Written by Stefan Martinovic for Gaebler Ventures

How much to pay employees? That's a question that every growing business must address, and we've got a few insights to share on the subject.

Now that you are establishing your business, you are beginning to populate your office with employees that you believe will benefit your business the most over the long run.

The question now remains how much should you pay your employees?

Determining compensation levels is an important business decision that must be made before candidates are hired. Whether you decide to compensate above the market in order to attract a higher caliber of employee or below the market in an attempt to save some money, having an established compensation practicum in place will make hiring decisions easier for you.

Depending on what type of business you are in and what function individuals will be performing, the first step is to decide whether you will implement a wage-based or salary-based system. The primary difference is that wages are based on hour worked and salaries are paid for a particular job regardless of hours worked. Typically, higher level jobs or those within larger companies are salary-based.

When determining compensation and pay scales, you must remember that pay levels must be high enough to attract quality employees. The amount of compensation must also reflect the nature of and the amount of labor performed. Finding the balance between compensation that is both sustainable for employers and adequate for employees can often be challenging, especially in the early stages of business development where money can be tight. Performing some research to find out what comparable positions in the area are paying should be your first step in determining pay for new employees.

A wage survey takes many factors into account and allows you to see what competing businesses are paying their employees of a similar job function. A wage survey takes into account the availability of qualified individuals as well as the level of demand for prospective employees. The wage survey also weighs extraneous factors such as local cost of living as well as the benefits of working in the community where the company is based.

The bottom line is that it is necessary to provide equitable pay for your employees. Hiring the right people for the job can very well determine the future success o your company. Compensation can vary wildly depending on the individual and the position they are a candidate for.

While your overall strategy may be to pay below market, coming across the right individual might force you to make an exception to your strategy in order to secure the individual who will most benefit your business.

Stefan Martinovic has an extensive body of work across the financial services, manufacturing, and retail industries. He is currently pursuing an MBA in Management and Entrepreneurship at The College of William & Mary.

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