Small business owners oftentimes do not have a Human Resources manager in charge of employee salaries, raises, job offers, and general maintenance of job classifications and industry average compensations. Alas, when a small business owner takes on all these duties him or herself, there may be a tendency to overpay employees.
Why would a small business owner overpay? A potential job candidate may request a certain salary that is above the industry average for the job classification. Instead of leveraging HR knowledge and research, an owner may simply agree to pay what the employee thinks he’s worth.
Another reason is a small business owner may “reward” employees too much. Though it’s nice to receive bonuses and raises out-of-the-blue, there should be a standard to help meet salary expectations.
How does a small business owner maintain a standard for all jobs and employees?
Industry Job Compensation Assessment
Every job in your small business should have a job title and a full description. You must research each job title and determine what the industry average salaries are for each. It is helpful to use online salary research guides like Salary.com or Payscale.com. This will help assure that the compensation you offer employees is on par with the industry.
Compensation Structure
Remember, employee compensation is not all just an hourly rate. Consider all forms of compensation you offer your employees, including medical, dental, and other health benefits, 401(k) plans, paid time off, employee ownership in the company, etc. All these types of compensation combine to create a full compensation plan for each employee. With a healthy dose of alternative forms of compensation other than cash, you can save money that helps your cash flow.
Performance Metrics and Job Reviews
Employees deserve to be rewarded for jobs well done. However, simply paying out bonuses or raises without major merit can be wasteful to your company’s reserves. Keep in mind that every employee should be reviewed at least yearly. Reviews should be based on performance metrics, milestones, and achievements that both you and the employee determined the prior year. Using metrics will help you base a solid decision on additional salary, or company bonus share.
