This is the time of year when I spend a lot of time with my clients creating small business budgets. One of the biggest challenges in the budgeting process is trying to determine fair pay for the team members. What should we be paying our people? How much do we need to offer in raises to make sure we keep our best people? There are 3 big mistakes I see people making as they evaluate this.
Mistake #1: Too little data.
I’m always shocked at how frequently business owners are having salary discussions with their employees with nothing more than anecdotal information. The employee comes with salary surveys from Salary.com, or Glassdoor.com or your industry trade group and your instinct is that these are crazy high. But instead of countering with facts of your own you call a few friends and ask what they are paying and tell the employee they are out of line.
Your friend’s salary information is relevant, and your instinct may be right about the Salary.com data, but you need better information than just notes from a few friends.
Mistake #2: Too narrow a view.
The second thing I hear from business owners is, “We can’t afford to pay them more.” Maybe this hasn’t been a terrific year for your firm, or maybe it has and you’ve spent a lot of money investing in computers, or offices, or new people… But regardless of the reason your people are asking you for raises and YOU aren’t seeing more money in your pocket. I hate to say this to you — it doesn’t matter.
You are competing for talent with a wide range of other businesses. If there is more work in your industry than there are people to do it, salaries are rising. And don’t be fooled by the high unemployment numbers. Unemployment among college educated workers is very low.
Mistake #3: Avoiding the issue.
Other business owners when faced with pressure from employees — employees that they need in order to be successful — decide to just avoid the issue. If I tell them I’m working on something, and then keep putting it off, maybe they’ll stop asking. Not likely.
Avoiding the issue breeds resentment and communicates to the team that you don’t care. If it does come back up the emotions from that could cause them to have higher demands and dig their heels in further.
What to do instead
Every year I encourage clients to go see what the market value is for their key positions. I have a problem using “industry survey data” because you don’t really know what that job title means to different companies. Instead go out and see what jobs are actually being offered at what salaries. I search Careerbuilder.com and look for real jobs, being offered by real companies, and compare them against the job that I’m pricing. It’s going to take some judgment on your part, but adjusting for the differences in roles and the regional differences, you can come up with a range that you have confidence in. (I made a video explaining my progress in detail here: What to pay for a particular job.
Once you have a well researched salary range you can be confident that if one of your people left you because they want more money — you could replace them in the range. If your people are getting paid on the low end of the range, you need to bust out the raises. If they are on the high end of the range, you can be confident that you are paying them fairly. Having that confidence can make all the difference.