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Top 6 Questions About Compensation From Small Businesses and High Growth Companies

Hello, and happy Small Business Week! Here at PayScale we work with thousands of small business to help manage compensation plans for their small and growing workforces.  

In honor of Small Business Week, we are sharing answers to six frequently asked questions we hear about compensation, specific to small businesses with growing workforces. 

How do I build an attractive employer brand even though my company is relatively unknown?

Start internally.

A strong employer brand starts with a strong pay brand, and your existing employees are your most vocal advocates when it comes to that pay brand. Small businesses thrive on employee referrals, and your employees need to know about the investment you’re making in compensation and benefits.

'Small businesses thrive on employee referrals, and your employees need to know about the investment you’re making in compensation and benefits.'Click To Tweet

A compensation philosophy statement needs to be part of the total rewards summary that is provided to employees. It tells your employees what your organization is trying to achieve with its payroll spend and how that goal drives a strategy that informs pay decisions and pay policies. A holistic message that drills down to clear communication about pay is the key formula for a strong pay brand.

For more tips on craft a strong employer brand and pay brand, check out our recent webinar with BambooHR.

How do I get leadership on board with building a Compensation Philosophy when we don’t have clear framework in mind and they don’t see a need?

Don’t ask for buy-in, ask for input.

When it comes to items like pay brand and compensation philosophy, it’s easy for busy small business leaders to feel that there is not time and energy to invest in “fluff”. The quick and easy way around this is to make the decision to craft a compensation philosophy and ask for specific input. Start with a pay philosophy, get stakeholders’ input on key portions, and align with early adopters to get the message out.

How do I set up a pay strategy that keeps us in line with our larger competition, while still considering our size and competition in our space?

Ensure that base pay aligns to the market comparison for companies that you compare to or compete with for talent. For many positions this will mean comparing to orgs within in a similar location, industry and workforce size. For some more competitive positions, you will want to compare to the market value of that position in larger organizations, different industries or other locations. Think about where the talent for those roles is coming from and where it is going. Then, compare pay to organizations that look like that.

Ensure that base pay aligns to the market comparison for companies that you compare to or compete with for talent. For many positions this will mean comparing to orgs within in a similar location, industry and workforce size.Click To Tweet

Don’t attempt to meet the same pay practices as larger or multinational organizations who are in a different labor market than you unless it’s crucial to your business outcomes to attract the exact same talent. Your pay strategy should be to benchmark pay to the types of organizations you compete with for talent – invest where you need to and maintain where you can.

How do I communicate pay to employees and job candidates when I can’t compete on higher salaries / afford to give higher salaries?

Lean into having open and transparent conversations with job candidates about your organizational focus, your business outlook, and your compensation philosophy to paint a full picture about your total rewards and pay brand.

This should be a statement – not an apology:

“We are a small and growing organization focused on doubling revenue and maintaining low cost to our customers over the next two years. We plan to achieve this goal through growing our revenue while keeping our operational costs low. Our compensation philosophy is to maintain fair market base pay in comparison to other businesses in our similar size, industry and location while investing in incentive pay funded by our business activities and awarded to employees based on achievement of business goals.”

For more tips about how to communicate your pay philosophy with employees, see our whitepaper on Communicating Compensation.  

How do I handle pay disparity between tenured employees and new employees in the same role?

Align pay ranges to market, make pay decisions based on performance, and reevaluate regularly.

Often pay disparity crops up when long tenured employees’ pay increases have not kept up with market growth and new employees come in at a higher rate based on the current market – OR – when more tenured employees have been getting regular increases without a significant change in performance or job duties and new employees doing very similar work look underpaid by comparison.

By aligning pay ranges to market to ensure that base pay is fair and allotting increases based on performance rather than tenure or seniority, you can make sure that pay decisions are incentivizing impactful business activities and that the criteria for pay increases feels fair to employees.

How do I consider bringing on a remote workforce and set up our comp strategy to incorporate those employees?

Embrace remote workers and devise a remote employee compensation strategy that aligns with one of these approaches.

1. Pay remote employees to the market they live/work in

This strategy is most apt when employees are being hired remotely from the start. Most commonly this trend begins organically when a key contributor is hired from outside the business headquarters location and becomes the initial remote employee.

If your business is looking to cast a wide net when it comes to candidates and you want employees to be hired from and work remotely in an outside location, typically that situation will warrant paying to the market they currently live in and will primarily be working in.

Tip: This tactic requires consistent pulsing of the market in different locations.

2. Pay all employees to the headquarters’ market

This method is more common when giving an existing employee the option to work remotely due a desired move. If an organization is opening up the possibility to work remotely as needed, this strategy will allow for flexibility with consistency and enable the business to maintain a core compensation plan that is the same for all roles regardless of location.

Tip: This approach will need come with an acknowledgement that employees moving to “hotter markets” will be at higher risk for attrition. Weight the cost/benefit of retaining that employee vs maintaining a centralized pay structure.

The most important piece of the remote puzzle is consistency – if the remote workforce policy applies to some and not others, it would be at best, confusing, and, at worst, discriminatory.

LEARN MORE

To learn more about how PayScale can help your small business devise a comp plan that aligns with your org, request a demo.

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Rita Patterson
Read more from Rita

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