Determining compensation is tough because there are no set rules. Salaries fluctuate depending on location, industry, current job market and candidate?s qualifications. You'll want to make sure you offer enough to attract top talent, but you also need to consider your budget.
Before you begin the hiring process, you need to do some homework on compensation. Start by reviewing your current practices. Your salary decisions come down to analyzing the value of the position within your company and how much you can afford. You also need to consider what you're paying your current staff. Salaries for new employees should be in congruence with those of current employees. Obviously not all employees should be paid equally, but you don't want to have the majority of your employees earning a minimal salary while a new hire comes in and earns substantially more.
The best way to gauge what you should pay a potential employee is to first define the duties of the position and then research what other people in similar positions are making. It's not enough to look at job titles, since they can be rather ambiguous and vary from person to person. Instead look at specific duties because they give a proper point of comparison. From there you can try to find out what your competition is offering. This may take some creative researching, but it will give you the going rate for top talent.
You also need to consider the different ways you can structure compensation. A simple salary is only one way. You could also try commission-based compensation, performance-based bonuses or some combination of the three. Perhaps the employee has a small base salary with commission, or maybe a base salary with commission and built-in incentive bonuses. Deciding between salary and hourly pay is also something you need to think about. The structure is entirely up to you; just realize that there is more than one way to compensate employees.
Now look at your payroll budget. You need to take everything into account when you're looking at how much you can afford. Your payroll budget not only includes your compensation offering (wage, salary, commission, bonus, benefits if applicable), but also payroll taxes, insurance and any other costs related to the payroll function. By being aware of all costs up front, you'll have an easier time figuring out how much can be allocated to actual compensation and you won't inadvertently go over budget.
With all of the information you've collected and researched, you can now set a salary range, from the minimum required to the most you can afford. Wherever you decide to set the range, don't forget about the future. If you set compensation at the very top of your range, your employee will have less of an opportunity to earn a raise or work his or her way up.
