5 Factors in Setting the Right Salary
Setting the right salaries for your employees can be a tricky matter. Pay too little and it will be tough to attract the right talent. Pay too much and you’re not maximizing your workforce dollar. But finding that middle ground can be a challenge, says Ken Abosch, partner, broad-based compensation marketing, strategy & development leader at global human resources consultancy Aon Hewitt. He says there are five key areas to examine before you start setting salary numbers in stone.
Skill Profile. Be specific about the skills that you’re going to need in the role you wish to fill. Different skills have different degrees of preparation, such as degrees, certifications, licenses or experience, and “those come with different price tags,” says Abosch. But don’t always err on the frugal side. Sometimes investing in people who have skills or other attributes that will help stretch your company’s abilities and offerings can offer a return on investment like no other. For example, investing in an experienced sales manager or a new employee with a professional certification that will allow you to offer additional services may be exactly what your company needs to grow.
Importance. Abosch advises thinking objectively about how critical the role is for your organization. As you structure your staff, think about where the most critical roles lie. Who are the people whose departure would be problematic? In addition to looking for ways to mitigate that potential damage, such as cross-training staff and dividing responsibilities so no one person has too much power or control if possible, realize that the more critical the role is to your organization, the more you’re likely to have to pay that person, he says.
Supply and demand. The labor pool from which you’re drawing will have ebb and flow in its supply. If the economy is good and jobs are plentiful, you may have to pay more to attract talent. When the job market is tight, you may have a greater talent pool from which to draw without paying a premium. Simple indicators can often be telling. Your trade or professional association may be a good source of information. The number of resumes your company receives in response to ads can be telling. Even checking online and newspaper job ads can be useful. Typically, listings are more plentiful when there are more jobs.
Information. You can also get insight into setting salaries from a variety of areas. Consult web sites like Salary.com and Glassdoor.com to get a sense of the work environments and pay rates reported. These can vary for a variety of reasons, so use them as only part of an overall picture. Your trade group or professional association may offer insight or even publish salary surveys. The National Association of Colleges and Employers also publishes a salary calculator.
Industry. Some industries are simply known as being higher-paying and that typically affects overall pay scales. If your industry is enjoying flush times, you’re probably going to have to pay more if you’re competing for talent.
“One of highest paying sectors is energy – oil and gas — and has been for years. Someone going into that industry is going to experience higher salary or total rewards that are richer than other industries, such as better health insurance, education reimbursement [in addition to premium salaries],” Abosch says.