Inc.com featured an article recently that highlighted some important reasons why you do not want to overpay your employees. Besides the obvious facts that the more you pay an employee, the less money you have to allocate elsewhere within the firm, there are some major problems with getting the compensation level wrong. Some examples that they highlight:
- You discourage the right type of turnover – Turnover is not always a bad thing. You want mediocre and poor employees to leave the company. You can always fire them, but that has its own set of issues. So in most circumstances, if your underperforming employee is making a higher rate than they would make elsewhere, they may begin to provide less than desirable results and coast through their daily work rather than leave the company.
- Employees may begin to feel entitled – If you are overpaying an employee, they may begin to transition to an attitude of entitlement and begin to believe that they deserve their current compensation. It will actually discourage hard work because they are already getting the reward.
- You may be bound to that high salary – As it relates to HR laws, you need to be careful that you do not expose your firm to legal issues. For instance, if you are overpaying Salesman A and hire Salesman B at a discounted rate to match market value, you need to be careful that Salesman B doesn’t interpret this as discrimination or gender/race inequality. In short, you could potentially have a difficult situation on your hands and to avoid legal issues all together find yourself locked in to the higher salary rate.
TopLine Strategies has developed what we call a “Three Column Analysis” that will help you zero in on the correct salary compensation so you can avoid these problems as you hire new employees. Our team conducts a twenty-point compensation analysis used to review the candidates’ current compensation plan, industry compensation comparisons and your proposed compensation package for the candidate. In short:
Column #1 validates with pay stubs and W-2s, the candidate’s current employment package. We monetize important metrics like salary, Paid-Time-Off, 401K, Insurance, daily commute costs and more….so you fully understand the candidate’s previous compensation package before they begin working for you.
Column #2 analyzes the industry compensation comparisons for similar roles and responsibilities and detail what the marketplace is paying for this skill-set and experience level across the 25th, 50th and 75th percentile. Our team utilizes industry leading software to conduct this portion of the analysis.
Column #3 finishes out the analysis by examining your proposed compensation package to the candidate.
The result is an easy to read 3-column analysis for careful review and consideration that identifies advantages of your proposed compensation package relative to the candidate’s validated earnings and the labor market’s compensation standards. This ensures that you are paying the correct amount for this position and this particular employee and will ultimately help you avoid similar disasters mentioned above. If you would like to learn more please contact us today.
View the Inc.com article here: http://www.inc.com/suzanne-lucas/are-you-paying-your-employees-too-much.html?nav=river