5 Tips for Fair Employee Compensation

By: June B. Lane

How to make sure you're paying your employees a fair and competitive salary.

See if this scenario sounds familiar: Your association began with fewer than 10 employees. Each was hired at a pay level resulting from individual negotiations. Starting pay was probably based on what they were earning at their previous job or some similar criterion.

Your association has now grown to 35 or so employees. You don't feel you need a full-blown pay study and a terribly formal structure, but you have noticed that your payroll spreadsheet looks a bit ragged. Some pay looks too high. Other employees could be undercompensated. How do you go from this helter-skelter situation to
one in which you are sure your pay is fair and competitive? Here are five tips to guide you:

1. Equity

Pay structures, regardless of the size of the organization, must have two things going for them: internal and external equity. Internal equity means that employees are paid fairly in comparison with their coworkers. External equity means that your employees are paid fairly in comparison with those in similar jobs in your geographic area. No matter how large you grow or how complex your pay structure becomes, equity remains the key ingredient of an effective compensation plan.

2. Purpose

Know what you are paying employees for—education, experience, job tenure, demonstrated skills, or a combination of these attributes—and do it consistently. Develop a written pay policy and stick to it. When there is no written pay plan, it is easy to become inconsistent and pay employees based on different criteria. If they realize it (and they will), morale can be damaged, and you can potentially end up losing a good employee or being involved in a lawsuit for unwittingly practicing discrimination.

3. Accurate Data

A number of excellent surveys exist that provide pay information. Select at least two of those sources and use them consistently. While they can cost hundreds of dollars, the money spent is insignificant if they prevent over- or underpaying by thousands of dollars. Use them every year, and you will find that they become the best compensation tools available.

4. Job Descriptions

While writing them can seem tedious and bureaucratic in a smaller organization that prides itself on its entrepreneurialism, they are the foundation for every human-resources initiative, including a solid compensation system. Get a format everybody agrees to and use it. Review them annually and revise them when changes occur. You will be surprised at how much information they provide and how often you will use them.

5. More Than Money

While all of us expect and appreciate good pay, research has repeatedly shown that employees will not stay with an organization with poor management or working conditions even when the pay is excellent. While the poor economy during the past few years has hindered many from switching jobs, as conditions improve, employees will begin looking for greener pastures unless they like the working environment as much as they do the money. Remember: Most good management practices don't cost a cent.

June B. Lane is director of human resources for the American Wind Energy Association in Washington, DC. Email: [email protected]