As a smaller business, developing a salary program can seem like a daunting task. After all, it entails evaluating your current processes and taking a deep dive into determining what you can improve. But if you want to future-proof your business, developing the right program is essential.
At Astron Solutions, we offer compensation consulting for small to midsize nonprofits and businesses. We help these organizations develop new compensation strategies, such as a salary program, that will allow them to better retain employees and keep everyone happier and more productive in the workplace.
A lot goes into employee satisfaction, including elements of both direct and indirect compensation. However, it’s an employee’s direct compensation, their salary, that plays the most immediate role in determining your business’s ability to engage and retain their talent.
For growing businesses, developing a strategic salary program that encourages long-term engagement can be an incredibly effective investment of your time and attention.
For the purpose of this article, we’ve outlined some general steps to get you started on this process. If you want to develop a salary program that will work for your business, you should:
- Outline the program.
- Develop a total rewards philosophy and strategy.
- Analyze and evaluate all positions based on the defined market.
- Determine grades and salary ranges.
- Determine salary structure.
- Determine your salary administration policy.
- Get approval and implement the program.
As a smaller business, you may face challenges like tight budgets and employee retention issues. But if you start with these steps, you’ll set your business up to tackle all of these challenges head-on.
1. Outline the program
The first step toward developing your salary program is outlining the program. Without a clear vision of where you want the program to head, it’ll be harder to track its progress and guide its implementation.
Follow these tips to outline your program:
- Set an objective.
- Decide on the target dates for implementing and completing the program.
- Designate someone to oversee the design of the program.
- Decide who will oversee the program once it’s implemented, like your HR department.
- Consider hiring a compensation consultant to review the program.
With a clear outline, you’ll know who to designate certain tasks to, who to go to for review and approval, and how your program will continue to run after it has been implemented. By setting an objective and understanding your budget, you’ll have a solid foundation on which you can build your program.
Hiring a consultant can also help streamline the entire process beyond your initial outline. For more information on different types of consultants that can assist, check out this list.
2. Develop a total rewards philosophy and strategy
One of the most important parts of developing your business’s salary program involves creating a compensation philosophy. A compensation philosophy is a company’s position about employee compensation. It explains their reasons behind employee pay and helps establish consistency.
For example, how will pay structures vary for different types of positions and job families? How will you compare to the industry market?
To begin developing your compensation philosophy, you should:
- Form a committee. As a smaller business, your committee should consist of at least one officer of the company.
- Determine pay structure. Decide on the differences between pay structures for executives, professional employees, sales employees, and so on.
- Create a mindset for pay decisions. Decide on what elements and achievements should drive pay decisions and be consistent with this.
- Compare to the market. Decide if employee salaries should be at, above, or below market standards.
- Think about benefits. Decide how much employee benefits should replace or supplement cash compensation.
On the topic of benefits, it’s important to differentiate between direct compensation and indirect compensation. Direct compensation includes salaries and bonuses, but indirect compensation is often overlooked and includes:
- Benefits, like healthcare, PTO, etc.
- Your business’s internal culture and atmosphere
- Your performance management style
- How you recognize achievements
- Work-life balance
A large reason employees leave a company is because employers don’t focus as much on offering policies that pave the way for a better work environment and work-life balance. If you focus part of your philosophy on indirect compensation as well, you’ll be in a better place to retain employees and create a happier work environment for everyone.
3. Analyze and evaluate all positions based on the defined market
Running a small to midsize business gives you a greater understanding of the positions involved in your company. With people working more closely together, it’ll be easier to reach out to each department to analyze and evaluate the positions within.
Analyzing and evaluating positions is an important step to take when developing your salary program. Without a deep understanding of what each position entails, you won’t be able to accurately determine pay grades and salary ranges (more on that in the next section).
Take these steps to analyze the positions at your business:
- Talk with the leads. Talk with department heads, VPs, and managers to determine the specific functions each department performs.
- Interact with employees. Observe employees as they perform their tasks, conduct surveys, or directly interview employees doing the jobs.
- Develop job descriptions. Compile job descriptions for each position and then get feedback on those descriptions by the employees in those positions. This is another great way to make your employees feel happier along the way: by listening to and incorporating their feedback.
- Finalize all job descriptions. Once current employees have reviewed the job descriptions, incorporate any feedback and finalize each one.
- Determine exempt and nonexempt positions. Decide what positions should be exempt and nonexempt, following the guidelines in the Fair Labor Standards Act (FLSA) and any state laws where you operate.
- Start ranking. Rank the jobs within each department by level, and then rank them between departments. Compare these rankings to industry market data for reference, keeping in mind that job titles may vary between organizations. For that reason, you should read the job descriptions for the other positions you’ve included in your survey.
Having a clear idea of where each job fits in at your business will help you determine the appropriate salary program for the company overall. Ensure accuracy by cross-referencing other positions in the same industry and get feedback from those who are currently in the role at your business. All of this will set you up to determine the right pay grades and salary ranges.
4. Determine grades and salary ranges
Once you’ve analyzed and evaluated the positions within your business, you can begin determining grades and salary ranges. As a smaller business, you may only have three or four pay grades, but it’s still important to fully understand the positions you’re creating them for and go from there.
Here are some best practices to keep in mind when determining grades and salary range:
- Determine the number of levels at your business. This could include positions such as senior, junior, intermediate, beginner, etc. These levels should apply to each job family and you should assign a grade to each level.
- Decide on pay grades. Decide on the number of pay grades (or the monetary range of a position at a certain level) within each department.
- Look at key positions. Determine the key jobs at your company and review the market price of these jobs within the industry.
- Decide where you stand. Decide where your company wants to stand in relation to salary ranges within the industry.
Doing a little extra research into your salary program by looking at the larger industry can help you stay on track and reasonable with your new policies. The U.S. Bureau of Labor Statistics is a great place to begin this research and will help you see where your business falls in terms of compensation.
You can also purchase reputable salary surveys for your sector. This will help you find direct compensation numbers and more.
5. Determine salary structure
When you’re ready to start determining your salary structure, it’s helpful to review all of the job descriptions and take their importance to the business into account. This means evaluating each position and determining a minimum and maximum pay range.
While you determine your salary structure, consider doing the following:
- Review each job description and verify the necessity for maintaining each position.
- Meet with your compensation committee for review and approval.
- Make adjustments for existing employees.
- Review for internal job equity concerns.
When it comes to making adjustments for existing employees, especially, your research is invaluable. For example, if you’re paying an employee a salary that’s above their pay grade, you can consider adjusting by promoting them to the next pay grade. On the other hand, if they’re being paid below the new salary threshold, you can consider increasing their pay.
If you’re interested in learning more about employee compensation as it pertains to smaller nonprofits and organizations, Astron Solutions offers more insight on the subject.
6. Determine your salary administration policy
After you’ve finalized your salary structure, you’re not finished yet. You also need to develop a salary administration policy so that your new program is rolled out as smoothly and efficiently as possible.
As you begin creating your salary administration policy, be sure to:
- Document the policy. Document the general company policy, as well as specific policies for certain groups within your business.
- Consider performance factors. Develop a plan for merit-based raises and other pay increases, like bonuses, annual reviews, and promotions. It’s important to note that for HR purposes, if their wages grow over time based on performance, employees will be more inclined to stay and keep their performance at a high level.
- Get approval. Be sure to meet with your compensation committee for review and approval of the salary administration plan.
Finalizing your salary administration policy will take some organization and thought. But if you have clear documentation of the policy, as well as how you’ll handle performance factors going forward, you’ll be in a good place to consistently carry out your plan.
7. Get approval and implement the program
Getting overall approval from your compensation committee and implementing the program is the last general step you’ll take, though the work doesn’t end there. You’ll want to demonstrate your salary program’s value to not only your department heads but your employees, too.
Try out these strategies to get your program approved and implemented:
- Present a cost impact study that projects how much it will cost to bring current staff up to the proposed levels.
- Send this data for review and approval to senior managers and officers.
- Develop a way to communicate the plan to employees, such as through slideshows, literature, handouts, etc.
- Implement and monitor the program, getting feedback from managers and making changes where necessary.
If you openly communicate within your business and make sure each employee is onboard with the policy, you’ll set your plan and your company up for success. Be sure to put in the required research so that you can present the value of this new program and showcase its benefits to everyone it affects.
Developing a new salary program for your business can seem daunting, but following these general steps will provide a helpful introduction into the process. Be sure to have an outline, develop a philosophy, and break down each job so you can evaluate them individually and on the whole. Bringing in a compensation consultant can also prove to be invaluable.
Try out these steps for yourself and begin developing your new salary program!