Small Business Employee Compensation Packages: Choosing What’s Right for You
A Written Compensation Plan is Vital to Your Company’s Success
If you’re a successful small business owner, you likely have a solid business plan in place. However, if you’re like many entrepreneurs, you aren’t as adept when it comes to devising employee compensation packages. It can feel a bit like an afterthought when you’re focused on launching or growing your business, but determining the right compensation package may be critical to your long-term success. After all, the right compensation can assist you in recruiting top talent and in retaining your top performers.
As you consider your options, do so with your company’s overall strategy and values in mind. You want to be able to compete for the best talent, but without overextending your resources. Below we’ll discuss a few ways you can get started.
Strategize for a Competitive Advantage
Too often, small businesses operate under the assumption that they don’t need a comprehensive compensation program until their company grows. While it’s true that putting a plan in writing can make you slightly less nimble when it comes to employee pay decisions, having a written plan allows you to plan for the long term. So, if you’ve been putting it off, there’s no time like the present to devise or revise your plan and get it in writing.
Maybe you’ve had a salary structure in place for years, or maybe you’re just devising one for the first time. Either way, it’s a chance to gain a competitive advantage over other small businesses in the same market. Think outside the box, too – small companies can often leverage unique opportunities that larger competitors don’t have at their disposal. For instance, while you may not be able to offer the same salary as a bigger company, you can offset that with things like more autonomy or responsibility.
Do Market Research
As you plan to stay competitive, you’ll certainly want to do market research on the average salaries for similar job titles in your industry. However, for small businesses, location is also an important factor in determining a job’s market value. (Monster offers a helpful guide on market value here.)
The Small Business Administration also makes available a wealth of information that small business owners can use to do market research online. You don’t need any fancy tools either – just start by doing a web search using keywords such as “[job title], salary range, [your location].” You might be surprised at how much you can learn with this simple search, including how much salaries vary from one location to another. If you’re hoping to recruit talent from outside your immediate area, this becomes important. You can use a salary relocation calculator to assist you in determining fair compensation.
Make Your Compensation Strategy Transparent
For years, most businesses considered compensation to be a “behind closed doors” subject. However, a growing number of small businesses are making waves with “open pay policies” that are completely transparent. This can be a particularly savvy move if you want to show that you are committed to attracting – and investing in – top talent. It’s also wise if you employ many Millennials, as this generation tends to openly discuss salary topics with coworkers, too.
Being candid about your compensation policies can positively impact current employees, as well. When you’re honestly sharing how you benchmark salaries, you can build trust among your staff and even improve employee morale.
Consider the Efficacy of Ranges
Implementing salary ranges won’t be right for every business. However, including ranges in your compensation packages can have the effect of improving employee retention. Allowing employees to see that they have room to grow, and supporting their desire to be on a growth track at your company, is another competitive advantage.
Thoughtfully Anticipate Expectations
You know your employees are always going to be thinking about reviews, raises, and bonuses. How often are you talking to them about these topics? Annual reviews are still favored by some companies, but the trend these days is toward more frequent (and less formal) feedback for employees. While this strategy allows for more opportunities to address areas needing improvement, it’s also a great opportunity for more compensation incentives. For instance, you can set quarterly goals for employees as a way to boost performance while also offering a bonus or incentive. This sounds costly if you think of it strictly from a financial perspective, but employees find great value in non-cash incentives, too. You could offer a bonus day off, for instance, to employees who meet quarterly goals.
Be Sure to Include Benefits
Be mindful that employee compensation packages shouldn’t be just about money. Add value for your employees – and attract top talent – with benefits such as:
- Flexible schedules
- Remote work options
- Competitive vacation and sick day packages
- Wellness benefits
- Personal and career development programs
- Perks like company discounts or holiday parties
Get creative and think about what today’s workforce expects – especially those employees you wish to attract and retain.
Final Thoughts on Choosing an Employee Compensation Package for Your Small Business
It can be difficult to set aside time to develop a clear, written strategy for your employee compensation, but it is truly a worthwhile effort. In fact, you should think of it as a vital piece of your business planning, alongside things like your revenue projections. When you have a set compensation strategy in place, you get more overall clarity in your business, and you can make better decisions as you grow.
Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.