One of the most difficult challenges for a boss is determining the right compensation for each staff member. Since payroll is one of the biggest operational expenses for a company, determining a ‘compensation philosophy’ can impact success. The philosophy is simply how the company’s compensation structure compares to the market. Paying the highest relative to the industry is not necessarily the best course since it can be a major burden on the company. Paying below market will not attract the best talent.
Compensation can be viewed as both fixed cost (base pay) and variable cost (incentives/bonuses). Finding the right base range structure requires considering:
– How competitive is the current job market for this position (supply and demand)? A company needs to both attract and retain employees.
– The company’s reputation – Generally, the better the reputation, a lower base can be offered (it also depends on the job market).
– The impact of hiring new employees at salaries higher than longer tenured peers.
In accordance with the Fair Labor Standards Act (FLSA), employees must be categorized as either non-exempt (hourly) or exempt (salaried). The term ‘exempt’ comes from the regulation requiring payment of overtime. There are strict regulations regarding overtime, and this is one area where many companies run into trouble. Basically, companies must ensure that employees are classified properly, and non-exempt employees are compensated for all hours worked. Here’s a page link to a good exempt/non-exempt tool.
A good boss understands her company’s compensation philosophy and FLSA rules and is able to communicate it in a positive fashion to her staff. She should also know where her staff stands relative to similar positions in the company, and challenge any perceptions of inequity. Employees who feel under-appreciated, and especially under-compensated are high retention risks.
There are several websites for researching base compensation for specific positions. Some of these sites are listed below. Recruiters are also a very good source of compensation data since they are placing candidates in similar roles real time.
See also Compensation (Incentive).
- Creating a smart compensation plan (Entrepreneur).
- Overview of employee compensation.
- Understanding the Fair Labor Standards Act (U.S. Dept of Labor).
- Compensation data and information from the National Compensation Survey (U.S. Dept of Labor).