How much to pay an employee
This question worries everyone who faces difficulties in recruiting and retaining staff and is not sure if his offer is more attractive than the offer of most competitors in the labor market.
On the one hand, I don’t want to overpay, on the other hand, if the offer does not interest applicants, recruitment may be delayed or even end in failure.
Therefore, it is worth deciding on the logic of determining the optimal salary – both for the position and for an employee who is dissatisfied with the amount of his salary.
Please note that there is a difference in the assessment of the cost of the position and the cost of an individual employee or applicant.
I recommend reading about the assessment of the market value of an individual employee or job seeker here, I’ll tell you about 10 ways to determine the optimal salary for a position below.
Monitoring, analysis of the labor market, calculation of average market wages
The method is described in detail in the article about salary calculators.
Form a selection of vacancies in which the content of work and/or requirements for applicants are similar to the content of work and requirements for applicants for your position.
The average market wage as of the current date will be calculated automatically. If you want to position your offer about the average market salary, use the increasing factors wisely – 10%, 15, 20%.
Some companies position their offer simply – “pay the most”.
I do not think this approach is effective – the qualifications and performance of an employee non-linearly depend on the size of his salary. If you urgently need to determine the number of wages, I recommend studying the material How to review wages in 60 seconds.
Pros
Very reliable, it allows you to calculate the optimal salary and conduct reasoned bargaining with employees and job seekers, based on current information about the labor market.
Cons
Preparing a sample of vacancies takes time and knowledge of the labor market. It is difficult to get correct data if the sample is small – 3-5-6 vacancies.
It is not easy to prepare a sample for analysis if the position is not represented in the labor market and only exists in your company. Regular analysis of the labor market for several dozen positions implies significant labor costs.
Surveys of salaries
It’s convenient to use the salary overview – you don’t need to collect and analyze any data. You open a solid booklet and find the average, minimum and maximum wages by industry or specialty. It is not difficult to justify the optimal salary – you can refer to an authoritative source.
Pros
The lightest and fastest. I found the right position – you can immediately decide how much to pay. It is very convenient for justifying the size of salaries – if it looks solid and is not cheap, you want to trust.
Cons
As a rule, the salary survey is a pig in a poke. It may take several months from the time the review data is collected to its publication, you may be making decisions based on outdated information.
On which sample the data was obtained, by what algorithms they were processed, you will hardly know. A serious mistake can be the use of surveys that do not reflect the situation in the labor market but contain statistics on the level of salaries of working employees. Internal wages do not affect the labor market in any way unless they hire or fire staff.
Another risk factor for using surveys is that you can get carried away with the industry specifics of salary analysis and not pay attention to the fact that some universal specialists may be in demand in other industries where the salary is higher than yours.
Grading
Time-consuming way. We’re talking about Hay, Mercer, Watson Wyatt, and similar systems that companies develop independently. The principle is approximately the same for everyone.
Positions in the company are compared according to general criteria, obtained using the point-factor method of assessment, are converted into points corresponding to the relative value of the position within your company.
The positions that have received a comparable number of points are distributed according to salary groups – grades. A salary range is determined for each group, within which the amount of remuneration is determined.
Interestingly, the methods of factorial assessment of work have been used in our country since the 50s of the last century to develop qualification reference books, so you should not consider the authors of foreign methods as pioneers – they just actively monetized and promoted an approach to building remuneration management systems, which used as early as the 18th century.
Pros
Grading allows you to build a “tariff scale” for the entire company, eliminate the subjective approach to determining the size of wages and abandon laborious market monitoring. It can be used to determine wages for positions that are not represented in the labor market.
Cons
Mathematical algorithms are very capricious and can stubbornly place some positions in the wrong grades where they should be – you have to fix such errors manually. The salary range chosen by grades does not always correspond to the realities of the labor market – difficulties in hiring personnel can make you refuse to use the grading system.
Some grading leaders “tie” salary determination to a benchmarking sample of their clients, in this case, the amount of remuneration calculated by grades has nothing to do with the labor market.
Requests for applicants in the resume
The method can be effective for certain job categories. Not technically difficult – make a selection from applicants’ resumes, display the average, analyze statistics. Based on the ideas about the qualifications of applicants, you determine what level of salary will be acceptable for them.
Pros
It is effective when searching for highly qualified personnel when the number of necessary professionals in the market is measured by ten or two and you have to choose only from them.
When there are few “sellers of themselves” in the market, they are smart about pricing and their requests cannot be ignored.
Cons
The method is absolutely not suitable for unskilled personnel or situations when the number of resumes of the specialists you need is measured in hundreds and thousands, and the range of requests of specialists close in terms of professionalism can range.
In the case of unskilled personnel, everything is simple – no one will give a guarantee that the requested amount is not a materialization of the thought “I need so much for a normal life” or “I heard that you can earn so much” – it is clear that this is definitely a relationship to pricing does not have, reliable data cannot be extracted from such a sample.
As for working qualified specialists, they often look for work in the “background” on the principle of “+ 20 + 60% to the available income”, not paying attention to the presence/absence of offers in the labor market, so their requests are unlikely to help you understand what your proposal should be.
Negotiating with applicants
Invite those who are of interest to you, talk, discuss the wishes of the applicants in an interview. You can ask, “Why so many, where else have there been, what other offers are there, how much they paid in the previous place?” There is no guarantee that you will receive truthful answers to all questions, but you can try.
Pros
You see applicants “live”, you can compare, evaluate, and bargain. You can get a lot of different information about offers from other employers.
Cons
You receive information only from those who “reached” you – statistically, this method is not very reliable. Only suitable for situations where you are really looking for the best value for money.
Qualification factor
The coefficient establishes the dependence of the salary on the level of qualifications. Determines the “fork” for employees with different experience and skill levels.
To link the size of wages to the level of qualifications of employees, grades and wage scales for workers, categories, and classes for specialists are being developed. Sometimes they are limited to changing the remuneration system for specialists of different qualifications. For example, set different sizes of the constant and/or variable part.
Pros
It is possible to link wages to qualifications. The system is simple and straightforward.
Cons
“Works” only with a well-functioning qualification assessment system, with a small number of employees, its use is impractical.
Category coefficient
This is one or several increasing or decreasing coefficients that allow you to determine the optimal salary, taking into account the content of work, working conditions, specifics of work technology, level of responsibility and complexity, the number of subordinate employees or departments.
If you have several departments, for example, warehouses with different areas, different numbers of personnel, and different cargo turnover, you can divide them into categories and, accordingly, set different salaries in them for positions with the same names.
For example, for a warehouse of the 1st category, the salary of the warehouse manager is -1.5 from the base rate, the operator’s salary is calculated as 1.2 from the base rate, etc.
Pros
The system is perceived as fair and takes into account the complexity, responsibility, and intensity of work.
Cons
It is not easy to correctly assess the difference in the work of different departments. Classification of divisions and/or works is effective in a large company.
Relative ratio
This is an increasing or decreasing coefficient that allows you to determine the size of wages for a position relative to other positions with similar content of work or employed in the same production process.
For example – taking a certain rate as the base one, you can use relative coefficients to build a “ladder” of salaries within a department, for example, from a loader to a deputy warehouse manager.
Pros
The system for determining the number of wages is simple and straightforward. Rates can be used without informing employees that they exist. You can set the salary for positions that are not represented on the labor market.
Cons
Not all employees can consider the established ratios to be fair. The salary calculated using such a coefficient may not correspond to the realities of the labor market.
Regional coefficient
An increasing or decreasing coefficient allows you to determine the optimal salary for a position, taking into account the specifics of the regional labor market.
The regional coefficient can be developed and applied both for certain settlements and for regions/districts determined according to the division adopted by the company.
The easiest way to calculate a regional coefficient is to determine the average ratio of the average market salary for several common positions in the “base” region to the average market salary in the region for which the regional coefficient is calculated. I repeat – this is the easiest way, if the task is difficult, you will have to calculate the coefficient differently.
Pros
A simple and logical way to determine the number of wages in another region.
Cons
Not suitable for all positions – determining salary for some using this ratio will be incorrect. The salary calculated using such a coefficient may not correspond to the realities of the labor market.
Logical-analytical
Allows you to calculate the number of wages for positions for which it is impossible to collect statistics on the labor market, but which combine the functions of other positions.
The logic of its use is the calculation of the “cost” of a position by evaluating the “cost” of certain types of work. Suppose a convoy has the positions of “mechanic” and “foreman of drivers”.
The foreman works like a regular driver, but he also has managerial functions. Statistics for this position in the labor market cannot be obtained.
To understand how much to pay the foreman, we need to know how much the driver earns, how much the mechanic earns, and what percentage of the foreman’s working time is spent on performing managerial functions.
Pros
An easy way to calculate the optimal salary for positions with different volumes of different functions.
Cons
Sometimes it is difficult to find positions whose salaries can be used as a basis for calculating the optimal salary for the position we are interested in.
The choice of the “mechanic” position as the base one for assessing the “value” of the foreman’s managerial activity in the example described above is rather subjective.
