Attracting and retaining talented employees is vital to the success of any business, and offering competitive compensation is one of the most important things that you can do to make your business attractive to the best and brightest.

But what exactly is a competitive salary for your industry and your geographic area? Following these six steps will help you put together the best pay scale system and ensure that you’re paying employees fairly.

1. Create Written Job Descriptions

Before you even begin thinking about numbers, you should be thinking about people. Who does your business need in order to operate daily? Compile a list of job titles from entry-level through management. Then, create complete descriptions for each job. The descriptions should outline what tasks the person is responsible for, who oversees the person in the position, what hours are required, who works directly with the person in the position and what qualifications are mandatory and desired for the post. Make these job descriptions your ideal vision of the job. What types of experience, training, skills and education would the perfect person possess?

2. Do Some Research

Once you have clear descriptions for every job in your company, you can begin researching what other businesses in your industry are paying for those types of jobs. The three best ways to research salaries include:

  • Expert Sources – The U.S. Bureau of Labor Statistics provides highly detailed annual salary and hourly wage information for all types of jobs and industries both nationwide and in key metropolitan areas. States also offer occupational wage statistics for metropolitan and rural areas. The information on government websites tends to be the most reliable and is a great starting point for your research.
  • Want Ads & Employment Sites – Reading print want ads and checking out job postings on employment sites will give you a feel for what your competitors are offering the same types of employees that you’re targeting.
  • Non-Government Websites – Websites for professional associations, newspapers, and magazines and reference sites may also provide insight into the going salaries for various jobs.


3. Decide on the Type of Pay

For each position, you’ll need to decide whether employees will be paid hourly wages or an annual salary. Typically, jobs where the time that the employee spends on-site is vital to the success of the business, should be paid hourly wages. For example, you need enough servers present at any given time to serve customers or an administrative assistant on-site during key business hours to handle tasks. Employees whose knowledge and skills are the key asset that they bring are often best paid by an annual salary. Examples include managers and professionals like accountants and lawyers. Remember that sales commissions and bonuses can also play a role in compensation and be used to reward top performance.

4. Establish a Budget

If you don’t already have a portion of your operating budget set aside for salaries, you’ll need to do that before you begin creating scales. Most experts recommend that somewhere between 18 to 52 percent of your operating budget be devoted to salaries.

5. Create a Scale

Using the research that you’ve gathered, create a minimum and maximum annual salary or hourly rate for each position. Don’t think about your budget the first time that you create your scales. Simply use the information that you gathered and create an ideal scale. Then, go back, add up the total cost of what you’d be paying out if everyone received the top of the scale and readjust as needed. This step can be time consuming and you may need to adjust and readjust several times.

6. Evaluate Candidates

Once your pay scales are complete, you’re ready to begin evaluating actual employees to set fair compensation. Use your job description as a guide. How well does the person match up to your ideal vision of who would work in a particular job? If they are exactly what you had hoped for, position their wage higher on the scale. A person who has about half of what you’re envisioning should fall partway on the scale, while someone who is less of an ideal match would be toward the bottom.

Once you have your salaries determined, you’ll need to revisit them annually to ensure that you provide fair pay increases to reward performance and keep up with the rate of inflation. Don’t view employee compensation as something set in stone. Remaining flexible and adjusting as needed will help you retain your top employees and continue to attract talented individuals as your business grows.

Paul Nugent

Paul Nugent

Paul Nugent is a small business advocate who uses his background in the startup space, along with his POS system expertise, to allow small business owners to make informed decisions within their specific budgets.