How to Pay a Fair Salary: 5 Principles
It probably seems like some of your employees are never satisfied with their salaries and that fair pay is always an issue needing to be addressed with either job applicants or current employees. If your organization and its managers haven’t heard the following questions and complaints from your current or prospective workforce, consider yourself among the lucky few...
- “I do the work of 2 people, why aren’t I paid more?”
- “If I’m doing a great job, why aren’t I getting a bigger pay adjustment than 2%?”
- "Can you pay me 'x' for the job given my credentials?"
- “The company had a record year last year and we didn’t receive a bonus or raise.”
- “I haven’t gotten a pay raise in 3 years.”
- “I’m working harder than ever with fewer resources and my pay doesn’t reflect my contributions.”
- “Why don’t we get cost-of-living increases?”
- “Why is she paid more than me when she does less work and performs worse?”
- “The company down the street pays more for this job.”
- “I found data on the internet which says that I should be paid 'x' for my position.”
These salary questions are tough and complicated for employers. They don’t have easy answers. Plus, with the wide availability of pay information on the internet, employees can quickly become skeptical of your pay practices if they don’t match or seem fair to what they see, hear and read online.
What’s an employer to do? Try to keep salaries as fair as possible and ward off perceptions of inequity as best they can, keeping in mind the needs of the business and market. Below are 5 widely accepted comp principles that employers have successfully used to keep pay fair and complaints to a minimum.
Principle 1: Play to the market.
The best way to stay on track with compensation is to know what your immediate, local competitors are paying and how they pay. Conduct thorough market analyses. Look at details like county and industry comparisons. Consider years of experience and education factors. Explore how other employers pay – do they offer variable pay, merit increases, pay premiums or bonuses in addition to base pay? These factors can lead to substantial differences in total pay.
Principle 2: Make internal comparisons.
What are you paying a premium for at your organization? Are certain skills, behaviors or job attributes more valuable than others to your business? Should they be paid a premium as a result? Who is most important to your company? Comparing the value of positions in the organization can help make sure that employees are paid fairly in relationship to their contributions to the business. Just make sure employees know what skills and attributes are valued.
Principle 3: Directly tie pay to performance.
One of the biggest criticisms employees have about their pay is when underperformers are paid as much as them and when working hard and performing well doesn’t necessarily bring a higher pay raise. It can be frustrating to your highest performers when better performance doesn’t equal better pay. That's why it's critical to accurately measure performance regularly and reward it with pay increases or variable pay.
Principle 4: Share the wealth.
If your organization is having record financial years, employees will eventually notice and become disenchanted if they aren't able to share in the wealth and success they helped create. The majority of employers share their business' financial success with their employees in some way, such as bonuses, profit-sharing and merit increases. Their pay should be tied to your organizational results. If pay can't be adjusted, consider other rewards to recognize employees.
Principle 5: Provide a living wage.
This means compensating employees in a way that allows them to meet their basic needs. When there is a consistent problem or complaint of not being able live on a certain amount of compensation, consider exploring your pay practices and how they meet your talent’s needs. If a segment of your workforce can't survive on what they are being paid, then it may be time to re-evaluate your pay practices, even if the market differs. Take care of your own.
Fair and competitive salaries are absolutely essential for attracting, motivating and retaining employees. When unfair pay is a main issue in a segment of your organization, use these five principles and adjust your pay practices accordingly.
View ERC's Wage & Salary Adjustment Survey Results
The survey reports data from Northeast Ohio organizations regarding their actual and projected wage and salary adjustments.