Small Business HR Department: Compensation Strategies That Work

In the economy of the last decade plus, the small business HR department is being fiscally responsible by doing more with less. But how do you determine what compensation should be for your existing and future positions? How will you attract and retain top performers with what you have to offer? There are many possibilities and solutions. The following strategies will help you employ those who are motivated to stay with you for the long haul.

To better understand small business compensation strategies, let’s define what compensation is and what it entails. Compensation is the total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required.

Compensation is based on:

• Market research about the worth of similar jobs in the marketplace
• Employee contributions and accomplishments
• The availability of employees with like skills in the marketplace
• The desire of the employer to attract and retain a particular employee for the value they are perceived to add to the employment relationship
• The profitability of the company or the funds available in a non-profit or public sector setting, and thus, the ability of an employer to pay market-rate compensation

Compensation also includes payments such as bonuses, profit sharing, overtime pay, tangible recognition rewards, and sales commission. Compensation can also include non-monetary perks such as a company-paid car, stock options, company-paid housing, and other non-monetary, but taxable, income items.

Whether you are restructuring your current compensation model for one hundred employees or just getting started hiring your first employee, you may want to:

• Develop accurate and thorough job descriptions and subsequent positions
• Decide if there will be differences in pay structures for executives, professional employees, sales employees, etc.
• Decide the extent to which employee benefits (such as variable pay) should replace or supplement cash compensation
• Complete salary benchmarking: establish pay grades for each position, based on required tasks and your forecasted business plans, verify those pay grades by comparing them to industry market data
• Determine what salaries will be set at or below market and which require you to offer more than the standard
• Negotiate with candidates and current employees by offering incentives and compensation that is in addition to their annual salary

Variable Pay as an Option

A great option to compensate employees in addition to their annual salaries is to create a variable pay structure that works for you. Each organization will need to customize this solution. You will need to tailor it to the areas of your business in which you wish to have the greatest impact, as variable pay has many options that will work for any industry. Variable pay is employee compensation that is used to recognize and reward employee contributions toward the company goals: profitability, productivity, teamwork, attendance, quality, safety, or any other metric that is important to your business’ success. The employee who is awarded variable pay has gone above and beyond his or her job description to contribute to the organizations’ objectives. Variable pay can be awarded as profit sharing, bonuses, holiday bonus, deferred compensation, cash, goods or services such as employee discounts or travel excursions, etc. Variable pay can also be used as a group or individual reward.

Establishing a 401(k) Plan

Lastly, establishing a 401 (k) plan will be a value to your current and prospective employees. While there will be costs associated with the set-up and maintenance of these plans, the benefits far outweigh the cost. Retirement plans have become a necessity to attract and retain talent. With this knowledge, coupled with your salary research before hiring and all the wonderful incentives possible from the variable pay structure, you are well on your way to securing your and your employees’ future.

Hureco Maverick’s consultants have many years of experience helping guide the HR development of small businesses in the NYC area and beyond. For a free telephone consultation to learn in what ways we can help your business thrive and grow, call us now!

About the author

Tamsin is a senior manager at Hureco Maverick; she is also a coffee lover, cruciverbalist, altruist, and advocate for corporate social responsibility and volunteerism.

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