Without established salary ranges and salary structure, setting a salary can be like spinning the roulette wheel. Most companies have salary offer guidelines based on competitive market data and established salary ranges for positions. Ideally, you will have these established tools and practices in place before you have to make a salary offer. Salary scales are a valuable tool in recruiting and hiring new employees as well as providing baseline amounts in making salary adjustments for existing employees.
There are many things to consider when determining where to set a salary for a new hire including the candidate’s experience and qualifications that are either required or needed for the job, current salaries of employees in the same or comparable worth jobs, salary range, geography, industry conventions, and company budget. Other considerations may be bargaining agreements, prevailing wage contracts or arrangements, and the company’s compensation philosophy.
To determine accurate external wage comparisons, employers should carefully define the appropriate market and competitive set. Defining the market too narrowly can result in wages that are higher than necessary. Conversely, defining the market too broadly may cause an organization to set wages too low to attract and retain competent employees. Paying prevailing wages can also be considered a moral obligation. This focus on external competitiveness enables a company to develop compensation structures and programs that are competitive with other companies in similar labor markets. Employee perceptions of equity and inequity are equally important and should be carefully considered when a company sets compensation objectives. Employees who perceive equitable pay treatment may be more motivated to perform better or to support a company’s goals.
Internal equity is of equal importance to external competitiveness when setting pay. You want employees to feel they are paid fairly as compared to their co-workers as well as to adhere to regulations regarding pay discrimination. If starting salaries are negotiated, ensure that such a practice does not have an adverse impact on women or minority workers. Generally, jobs do not have to be identical for equal pay to be required, only substantially equal in terms of skill, effort, and job responsibility, and performed under similar working conditions. For discriminatory purposes, pay refers to salary, overtime, bonuses, vacation and holiday pay, and all other benefits and compensation of any kind paid to employees. Pay disparities may be allowed under a seniority system, a merit system, or a system measuring earnings by quality or quantity of production. Hardly anyone notices when you pay “above average” compared to the outside world, but any perceived deficiency in “internal equity” can come back to bite you.
As you can see there are many factors and considerations when setting pay and it can sometimes feel like a delicate balancing act. But doing your homework, keeping up with the external market, and addressing internal pay inequities will go a long way to simplifying the task of setting new hire salaries. It is important to ensure that the approach taken is guided by the compensation philosophy and is applied consistently. An effective Salary Administration Program allows a company to meet the basic objectives of compensation: focus, attract, retain, and motivate.
At WageWatch our compensation consultants are focused on your organization’s compensation needs and are ready to help you ensure that your compensation programs support your company’s business strategy and objectives. WageWatch also offers accurate, up-to-date benefit surveys, salary surveys, and pay practice data that will allow you to stay current. This information is beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data, and market compensation reports, please call WageWatch at 888-330-9243 or contact us online.