How Much to Pay Employees: Setting the Right Compensation to Recruit Great Staff

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<h2>Key Takeaways</h2>
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<li>Research the market for pay levels in jobs similar to your own.</li>
<li>You may need to adjust for specific factors: pay more for riskier jobs or those in undesirable locations, and for jobs that are in high demand or where competitors are paying a lot; pay less for training jobs.</li>
<li>Great Performers pay for themselves, so pay them well.</li>
<li>Pay staff according to the value that they contribute, but don’t rely on commission-only or low basic salaries. A good base salary plus a bonus for performance should strike the right balance.</li>
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Deciding how much to pay your employees is a crucial part of recruitment and retention. Offering competitive salaries not only helps attract top talent but also ensures that your employees feel valued and motivated.

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Identifying Market Pay Rates

When you’re recruiting for a job, you need to know what other employers pay. If you haven’t hired anyone in a while, you’re probably out of touch with current salary levels. 

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1. Conduct market research

To get up to speed, look on a few job sites for positions similar to yours and located in your region.

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2. Adjust for specific factors

• Location: Pay more for roles in undesirable locations or high cost-of-living areas.
• Economic conditions: Pay levels fall during recessions and rise when the economy or inflation is growing; your offer will need to reflect these broader conditions.
• Unattractive companies: You may need to pay a premium for staff willing to risk joining a start-up, an organisation in a turnaround situation or a declining industry.
• Sector disparities: There are big pay differences in some sectors such as finance which has City traders earning huge amounts and high street bank staff on much less.
• Experience: Trainees don’t need to be paid as much as you’ll be putting time and resources into developing them.

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3. Understand the impact of competition

• Know what your competitors are paying and the industry standards. Some competitors have deep pockets and pay too much, forcing you to respond.
• For roles in high demand, be prepared to offer a higher salary to attract the right candidates.

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4. Don’t overpay

Warning: Your business will become less profitable and resilient to downturns, and Poor Performers will find nowhere else that can afford them, if you overpay your employees.

Having done market research and considered any adjustments, you might end up with a salary higher than you’d anticipated. But remember that if your business has processes in place for staff to be able to create value then Great Performers pay for themselves over and over - retention is often better than recruitment.

You may also find that you’re not paying your existing staff enough! This might not matter to employees who aren’t solely motivated by money, but others could be on the lookout for a better-paid alternative. Take action quickly to make sure you don’t lose good people.

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Pay According to an Employees’ Contributions

Fairness isn’t about paying everyone the same. It’s about paying them according to the contribution they make towards Measurable Outcomes. People in the same job might not perform equally well and those contributing more should be paid more. Here’s how to approach this:

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Performance-based pay

• Measurable Outcomes: Link pay to the Measurable Outcomes listed in your Great Performance Profile. Employees who deliver more value should be rewarded accordingly.
• Commission: Offer a good base salary with performance-related bonuses. This approach is more attractive to Great Performers than low base salaries with high bonuses or share options alone. 
• Avoid commision-only: Commission-only jobs create a highly competitive and often toxic environment, which might undermine teamwork. Very few people can afford to pay their bills with such an unpredictable income.

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Non-monetary incentives

Non-monetary incentives can be effective in attracting and retaining good staff.

• Standard benefits: Because most employers offer legal minimum holiday allowances and pensions, they are no longer competitive differentiators.
• Valuable benefits: These include free parking, flexitime or remote/hybrid working.
• Cultural “benefits”: Casual dress, free food and drink, and office dogs are cultural statements that shouldn’t be considered a benefit.

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Legal considerations

• Ensure your pay practices comply with legal and ethical standards. Adhere to minimum wage laws, equal pay regulations, and other relevant legislation.
• ​​The National Minimum Wage is only designed to reduce low pay. It doesn’t consider industry sectors, geographical locations, or market dynamics. Therefore, don’t necessarily use it as a benchmark for what you should pay (or try to get away with), especially if you want to attract Great Performers.

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Additional Resources

• Recruiting Book; The Secrets of Great Recruitment: How to Recruit Great Employees
• Downloadable PDF guide; Paying for Performance: Deciding Salaries to Attract & Retain Top Talent.
• Article; Compensation and Benefits: The Truth About Overpaying vs Underpaying Staff.