Setting a Salary

Brought to you by HRNow! for small business™ The Right Advice at the Right Time to help you make the Right Decision

Attracting and retaining good candidates during a labour shortage is no small feat! Employee compensation, in all its forms, is crucial to keeping your top talent. But how do you decide what wages, raises, and benefits to offer?

You’ve found an excellent candidate and you want to offer them the most competitive salary your budget can accommodate. Here are four points to consider when setting a new hire’s salary:

1- The company’s financial capacity

Before hiring an employee, you must assess how much the company is willing to pay to fill the position. 

If the company’s finances don’t allow for hiring a candidate with five years of experience, you will have to determine whether your needs can be met with a candidate who has three years of experience. 

Ask yourself:

• What are the main responsibilities of this position?
• What qualifications are essential for this position?
• How many years of experience are required?
• How does the position fit in the company’s organizational chart? Will other employees report to this position?
• What kind of team will this employee be joining?

A thorough “needs assessment” will help you set the right salary, as you’ll know which comparisons to make with other jobs. For example, if you’re looking for a production supervisor but offering the salary of an operator, you’re going to have a hard time attracting the right candidates.

You may also choose to revise the budget for this position by reducing other company expenses. Consider leaving yourself some latitude for salary increases. Setting a salary too high and then having to freeze it for a few years can have an impact on employee motivation and retention.

2- Wages and the labour market

Given the current labour shortage, it’s more important than ever to be competitive. The Government of Canada’s Job Bank has information on the labour market and you can search for wage information for the occupation and location

3- Fairness within the company

When creating a new position, you should look at where it fits in the structure of the company. The salary offered must be consistent with what is currently offered in an equivalent position.

Fairness is very important for employees. They need to feel that they are being compensated according to their worth. This does not mean that you should pay the same salary to all employees who occupy a given position. It simply means that there must be a good reason for differences in salaries. 

An employee who understands why there is a difference between their salary and that of their colleague will be more satisfied with their own pay. 

Ask yourself this simple question when you’re setting wages: if this salary was to become public knowledge tomorrow morning, would I be able to justify it? 

Pay equity is also a matter of law. Quebec, Ontario, and federally regulated businesses with 10 or more employees must comply with pay equity legislation.

4- What about flexible pay?

Flexible pay means a salary, or portion of a salary, that varies according to the achievement of certain objectives. These are most often sales objectives, but they could also be based on productivity.

The four elements mentioned above also apply to this type of compensation. However, you should be aware that by adopting a flexible pay mode, you lose a little control over your employee’s salary. A high-achieving employee will have a salary that reflects their abilities. Do simulations before presenting the components of the employee’s compensation (base pay + percentage of commission). For example, if an employee sells $500,000 of merchandise and you apply your compensation formula, will you be able to pay them?

Wages are just one part of the compensation package. Want to learn more? Read our article on Employee Compensation.