Managing People - Compensation
Streetwise Tips

Streetwise Tips on Compensation

Pay your people well. For all positions you should pay at least a little more than is average. When employees feel that they are being treated well, they are going to be more motivated to perform well for you and your company.

* Person, not position

Pay the person, not the position. In small companies employees are often responsible for multiple tasks, or their performance is expected to make all the difference in the overall performance of the company. In this situation you should focus on an individual’s contribution to the success of your company, not the job title. Some companies, for example, might even place a top salesperson on an incentive pay plan that allows him or her to potentially earn more than the president of the company. For example, at my grandfather’s shoe manufacturing firm, the sales manager earned more in some years in total salary and bonuses than my grandfather did.

* Annual reviews

People expect to be reviewed every year. If you review their performances and salaries less often, they are bound to be disappointed. Some companies review people on the anniversaries of their hire dates. As much as possible, however, you should arrange to review all employees at the same time on the same date each year. Otherwise, as the company grows, you will always seem to be reviewing employees, and distract your other workers.

* Compensation is a hot button

Think compensation out carefully before you act. If you offer a candidate too much money or increase an employee’s pay too much, the mistake will follow you as long as the employee is with the firm. Base pay and any change in base pay establishes a basis for future increases.

On the other hand, if you offer a candidate too little money or raise an employee’s wages by too small an amount, you run the risk of losing a good candidate or a valued employee. Some employees will speak up and complain about an unsatisfactory increase. Others may just quietly start looking for another job.

* Compensation is not just a retention issue

I see many employers, especially small businesses, give their employees lousy increases because they assume that the employee will never leave the company. And they may be right, but they sure aren’t going to get the full level of commitment from the employee that they would have gotten had they paid them what they really deserved!

I see paying people well or above average as a shrewd investment. And, believe me, it is one of the very few areas of running a business where I don’t like to skimp. Time and time again, I have surprised top-performing employees with big, fat pay increases—much more than was necessary to retain them, but nonetheless well deserved. I love giving great pay raises—and I know that the money will come back many times over in stronger commitment and dedication to the business.