Salaries: How Small Businesses Can Stay Competitive without Breaking the Bank

Salaries: How Small Businesses Can Stay Competitive without Breaking the Bank

Figuring out how much to pay your people is always a delicate balancing act. First, you want to offer enough that you attract the best and earn their loyalty; for example, PayScale’s 2015 Compensation Best Practices Report found that “seeking higher pay elsewhere” was one of the two top reasons employees might leave a company. But you don’t want to pay so much that you hit a point of diminishing returns in terms of productivity and value; it makes no sense to overpay an underperformer who consistently fails to deliver on the obligations of their role.

When evaluating salary, consider two dimensions: (1) difficulty to fill/replace the role and (2) risk of losing the candidate or employee, as the following chart illustrates.

Remember: adherence to applicable regulations is crucial; and it’s always best to keep compensation in alignment with fair market value, relative to the criticality of the role and availability of qualified candidates.

If your organization is struggling with employee retention or hiring issues, use these dimensions as a framework for evaluating team losses. For example, if more than half of the people who left your company last quarter came from the high-high quadrant, you definitely need to re-evaluate your compensation strategy. Start here.

If you can’t afford a competitive base salary – and especially if it’s in a market facing a shortage of skilled staff, like nursing or information security – do everything you can to creatively position your benefits programs; cultivate a working environment that is welcoming, respectful and personally rewarding; and improve company branding and image to make it more attractive and appealing to job candidates.

Employee retention and hiring are about more than just money, and you can use that to your advantage. According to a Gallup Poll, managers account for an astounding 70% of the variance in employee engagement scores. Deal with bad managers immediately and ensure that other aspects of the employee experience are positive. Engage them directly to solicit feedback about their working conditions; if you can address non-financial issues, you can encourage loyalty and reduce the risk of turnover without spending an extra dime in compensation.

For more articles and information about small business and recruitment, click the link or contact CoAdvantage.