Establishing pay scales can be a significant challenge for human resources departments. On the one hand, salaries must be lucrative enough to attract the best talent, but they must also remain within budget. Maintaining a balance between the two can be tricky, but becomes much easier when you follow the steps below.
Carefully Evaluate Employees And Candidates
Existing employees must be frequently evaluated in order to determine whether or not they’re receiving fair compensation. Industry pay rates are in a constant state of flux and word gets around about who is getting paid what. When your workers find out that their counterparts in other companies are making far more than them per year, it won’t be long before they begin contemplating switching companies, especially when openings become available. The last thing you want is to lose top level talent to your competitors.
Collect The Right Information
One simple way to establish an effective compensation plan is to utilize data related to your industry. HR staff can do this by reviewing internet databases which provide information regarding the median wages which are paid by sector. Such information is made readily available by departments such as the U.S. Bureau of Labor Statistics. Another option is to assess the compensation plans of your competitors. Compensation plans should never be developed haphazardly; you should know your industry like the back of your hand. If you’re going to pay less than your competitors then you had better deliver other benefits to make up for it.
Create Fair Compensation And Employee Value
Once your HR department has gathered salary data which is related to your industry, you will next have to determine what value potential employees will bring to your organization. For instance, in a company whose profits are dependent on sales and commissions, the Human Resources staff can perform a tally of the potential profit a new employee would bring. If the new hire is expected to generate an additional $300,000 in sales for the firm within the first 12 months, than a salary of only $70,000 would be considered too low and in all likelihood the candidate would reject it. Raising the salary to $100,000 or $125,000 would be a more attractive option. The pot could be sweetened with other benefits.
Think About The Requirements Of The Position
Knowing how to pay employees is just as important as knowing the amount. You must decide whether to pay them by the hour, or through a salary which is fixed. The type of business you operate will often give you a good idea of the type of compensation model you should choose. For instance, salesmen are typically paid by commission, while those who work in retail should be paid hourly. Those who work overtime may need to be paid time and a half when they exceed forty hours within a single work week. HR payroll software can play an important role in helping you develop a compensation plan that is attractive and effective.