How to Put a “Price Tag” on Employees

Putting a price tag on a job can be a lot harder than pricing your company’s products and services. After all, pay packages have few rules. They go up and down depending on geography, industry conventions, seniority, and the job market, as well as a candidate’s background. The salary you set must be high enough to attract and retain top applicants but not so high that it eats into your profits. How do you decide how much a job is worth? Follow this five-step guide.

Review your Pay Practices
Often, business owners react to what a prospective employee wants before they know what they should be paying. Don’t wait until you find a candidate to come up with an offer. Do some homework and review your past practices and precedents. The decision comes down to how you value the job and what your company can afford. You also need to keep the salaries of new hires in line with what you pay current employees. Go through a budget process and check how much you spent on payroll for the past year or two. Decide how the position you're filling fits into that overall percentage.

Define the Job Clearly and Completely
You can’t research a job’s going rate unless you compare apples to apples. You need a clear-cut job description, not just a job title. Match the job to others in the marketplace by comparing the core functions, responsibility level, and required experience.

Track the Competition
Uncovering the competitive rate for a job takes detective work. To find what other companies pay, research these sources:

  • Search classified ads in newspapers, trade magazines, or online job boards.
  • Quiz your professional contacts. Talking to officials at your local ` of commerce or expert panelists at a conference or to other business owners will yield current salary data. Join a professional organization in your field. Many associations mount annual salary surveys. The data, funded by member fees, is collected just so companies have access to current pay rates. Also, call staffing agencies, recruiters, and/or some of your vendors to learn more.
  • Search government and media sources. Your first stop should be the U.S. Bureau of Labor Statistics (www.bls.gov). On the home page, click “Wages by Area and Occupation” to find salary histories. This information, while deep and extensive, may be a few years old. For more current information, check business and trade magazine Web sites. Many journals run annual salary surveys, both in print and online.
  • Pay for a customized survey. Many compensation consultants and market researchers sell salary surveys for specific fields or certain-sized companies.

Set the Salary Range
Once you have an idea of the competitive rate, experts suggest you set parameters for the job—both a floor and a ceiling.

Bundle Pay and Perks
Health care and retirement benefits and “quality of life” perks go a long way toward attracting talent. Don’t overlook flextime, job sharing, and similar options. Employees with two-career families, young children, and long commutes often choose more time over more money.

Consider adding these perks to the compensation package:

  • Work-at-home privileges
  • Discretionary hours (earlier mornings or later nights)
  • Paying for all or part of club memberships, association dues, and training courses
  • Bonuses, such as time off or other prizes that are pegged to performance goals
  • Paying for all or part of home technology equipment and/or telecommuting expenses
  • Picking up all or part of employee-assistance services, such as tax or retirement planning, daycare, family counseling, and so on

Plan for the Future
However you structure the salary, don’t forget to plan for the future. Leave room for raises and think 6 to 12 months to two years ahead. When you’re ready, put the offer in writing in an offer letter. Describe all the details and terms, including start date, pay package, benefits, vacations, and special perks such as telecommuting and flextime. Putting everything in writing avoids confusion or disagreements later on.

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