Developing Your Employee
Compensation and Benefits Structure

Developing an employee compensation and benefits structure will help your employees understand where they fit in the organization's structure and, after discussions with you, they will understand what they need to do to move up in the structure.

Employees want to know how they can progress; they want a road map that will give them directions in terms of getting where they want to go.

As much as it amazes me, employees will talk about their salaries to other employees. If you have not developed a salary structure and/or if you are not using a salary structure, this could cause significant turmoil in your business (if employees hear and believe they are not being treated equally or fairly, they will naturally be unhappy).

In building your employee compensation and basic employee benefits program, look at your industry.

A number of industries publish compensation surveys (including basic employee benefits such as medical and dental but also including more tangible benefits such as phone, laptop, and car expenses). Also look at industry trade magazines and industry associations; they often conduct compensation surveys. Lastly, do not overlook the advantages of outsourcing to human resources firms who may have previously conducted a survey in your industry and/or who you can hire to do a survey.

As a small business owner, you do not need to re-invent the wheel, you need to search for the employee compensation data that is available, assess it and apply it to your situation as appropriate.

Recognize that in order to compare your jobs to the jobs in the compensation surveys, you will need to have written job descriptions. A job description is the starting point for all employee salary structure building.

Depending on the unemployment rate and the need for specific job skills and training, you may need to provide or offer more than the compensation surveys indicate.

For example, if the average hourly wage for a skilled and experienced welder is $18 per hour, but there is a shortage of welders, you may want to structure your salary range for that position as:

• $15 per hour for a junior, with limited experience;
• $18 per hour for an intermediate, with good experience and skills;
• Up to $23 per hour for an outstanding individual, with excellent experience, skills and knowledge.

If you develop a progressive salary structure like this that is related to skills and experience rather than time on the job, than you must build in tests and/or standards to assess the individual’s capabilities.

Do not assess on gut feel alone – you may be incorrectly influenced by an individual who can "talk the talk", but who cannot "walk the talk".

Salaries, wages and benefits must meet legal requirements in your area: many countries control and set minimum standards for hourly wages and benefits. If you are unsure what the standards are in your state, province, or region, contact your local government office or check out your local government website.

Benefits that are often mandated by law are paid vacation, paid statutory holidays, overtime wages, pension plans (in some countries), unemployment insurance, worker’s compensation. Benefits that are not mandated but are becoming more common are health and medical insurance, disability insurance, pension plans, extended vacations, leave of absence due to death in the family, sick leave, and more.

It is important not to become overwhelmed by all the tangible employee compensation and benefit structure and costs that make it difficult for small businesses to compete with big business for good employees, but instead to develop an offer package for recruiting employees that is more than salary and benefits; such as job sharing, telecommuting, 4 day work weeks - 10 hour days, and other job elements designed specifically for the employee.

And remember that once you've hired your employees, you want to train and develop them to be high performers, and then you will want to retain them. A strong compensation plan will help you hire and keep the best people.

There are many good resources and specialists in this area of human resources. Contact one of the many capable employee compensation and/or employee benefits consultants if you need help or use the Contact Us form on this site for a referral.

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