How do I know if I’m compensating employees fairly, in accordance with industry standards?

The two basic steps are to: Research the salaries that other organizations are offering for similar positions in your region. Evaluate how much the employee will cost your organization compared to the value that person will generate to arrive at a general range for compensation. The sections below expand on these two steps. Industry Comparison […]

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The two basic steps are to:

  • Research the salaries that other organizations are offering for similar positions in your region.
  • Evaluate how much the employee will cost your organization compared to the value that person will generate to arrive at a general range for compensation.
  • The sections below expand on these two steps.
  • Industry Comparison

    Applicants are likely to find your job listing alongside those from other organizations, and they will compare your offer accordingly. Consider your offered compensation to be the curb value of the job posting. Like a beautiful front yard in real estate, it’s the most immediately visible component and can have a big impact on prospective applicants!

    To research compensation for similar positions in your region, Salary.com, Glassdoor, and PayScale are all large, reputable databases for salary comparisons.

    For a more official perspective, the US Bureau of Labor Statistics maintains a variety of databases for employee compensation across the country.

    Employee Cost

    Calculating how much an employee costs your organization can be a complex endeavor, so it’s not necessary to arrive at a fixed number. Getting a general range should be enough, and you can use several primary categories to calculate it:

  • Cost of recruiting: This will likely be minimal for most employees, but higher-level hires may require more expensive recruiting techniques.

  • Compensation: This should include both the base salary (or hourly wage) and additional factors such as stock options or employer contributions to retirement accounts.

  • Benefits: This should include costs related to all benefits, including health and unemployment insurance, workers’ compensation, etc.

  • Infrastructure: Don’t forget to include the cost of physically maintaining an employee. Office space, company vehicles, and other such concerns should be included in this figure.

Employee Value

Calculating an employee’s value to your organization can be even more nebulous than calculating the employee’s cost, but it’s an important factor in determining compensation. Keep these general categories in mind:

  • Responsibilities and duties
  • Profitability of the specific team or department
  • Profitability of past projects from that team
  • Profitability of past employees in that position, if applicable.

The Equal Pay Act of 1963

The Equal Pay Act of 1963 prohibits employers from discriminating between men and women on the basis of sex by paying employees at a rate less than employees of the opposite sex for work that requires equal skill, effort, and responsibility under similar working conditions. Employers will need to ensure they are following the guidelines of the Equal Pay Act when they determine the compensation they should offer their employees.

Also, be sure to note that the Lilly Ledbetter Fair Pay Act of 2009 updated the statute of limitations for filing an equal-pay lawsuit from 180-days from the initial discriminatory wage decision to 180-days from the most recent paycheck that was affected by the discriminatory action.

Conclusion

Ultimately, choosing appropriate compensation is a matter of balancing the equation. By comparing the employee’s value to cost, then aligning with industry standards, you can arrive at a compensation range that ensures you’ll find talented applicants while still protecting your organization’s bottom line. You will also want to be sure employees of the opposite sex are paid equally for performing equal work.

Helpful Link

Choosing Employee Compensation – Learn more about how to choose employee compensation from the Small Business Administration.

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