How to Determine the Right Employee Compensation

December 5, 2018

Category: Payroll

how to determine the right compensation for employees

There are several strategies on how to determine the right employee compensation structure and packages for small and mid-size businesses. How much should you offer? What’s fair? Here’s the breakdown.

New Hires

In a small to medium-size business new hire compensation is usually determined on a case-by-case basis. Start by taking a look at the position, experience, skills, and knowledge required to fill the role.

Before recruiting and identifying candidates take a look at these factors to help identify the right person and understand a compensation range based on similar qualifications.

Market Data

Once you’ve evaluated your position, you can start reviewing market data. There are many different paid sources that will give you excellent comprehensive data. Employers can also utilize free tools, such as salary comparison websites and company reviews.

Utilize market data to determine how much you will need to pay a prospective employee based on experience level, geographic location, industry, and job function.

Compensation History

A common and increasingly frowned upon strategy for determining compensation is asking the individual what their salary was at their last position and then adding a little bit onto that number. This strategy can be problematic because their recent salary may not have been appropriate for that specific role.

Furthermore, this strategy is actually illegal in specific regions such as New Orleans and New York City as well as in states such as California, Massachusettes, Delaware, and more.

Compensation Strategy

Once hiring decisions have been made it’s important to develop a compensation strategy to keep employees satisfied long term. Build the right employee compensation structure that gets new hires in the door, rewards their value to the organization, and motivates them to grow within the company.

Equal Pay for Equal Work

To establish an equal pay strategy be proactive in adjusting employee pay for a fair workplace. This can mean giving an immediate pay bump or an increase over the long term. Decisions should be made according to your comfort level and what’s fair and right for the employees.

Looking for more compensation information? Here are our compensation FAQs answered by payroll experts.


As a professional copywriter, Dan produces strategic marketing content for startups, digital agencies, and established brands. He helps organizations tell stories, achieve online presence, and builds brands that communicate with their customers. Dan is also a regular contributor to Forbes. He started writing after his first professional role as a health promotions coordinator for a local family physicians office.

Category: Payroll

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