pay strategyPayment Strategy Consideration Factors

Developing an effective pay strategy is critical to attracting and retaining good employees. The more employees feel that they are being compensated fairly and equitably for the work they do, the more likely they will want to stay working with you.

Here are 7 key considerations when determining your company’s pay strategy:

1. External Equity – how the company pays in relation to the external market

  • Ensure that you have a job description which details the responsibilities and qualifications required for the position.
  • Determine the fair market value for the position by matching the job description to other positions out in the market. We recommend using reputable salary surveys for market data, rather than free online sources.
  • Determine where you want to pay in comparison to the market (e.g. at market value, above market value, below market value).

2. Internal Equity – how positions within the company are paid in comparison to one another

  • Ensure that positions of a similar level of responsibility, or that contribute similar value to the success of the company, are paid comparably.
  • While two people in the same or similar level of position do not need to be paid identically, they should be within a similar pay range.
  • You should be able to justify why one person is paid more or less than another based on considerations such as: education, experience, job performance, goal achievement, longevity with the company, and other notable factors.
  • Be mindful that if the internal equity is off balance, this can affect employee morale, satisfaction and productivity.

3. Payroll Budget

  • Determine your overall payroll budget.
  • Ensure that you always meet your payroll obligations and pay employees when you say you will.
  • Budget for other payroll costs such as statutory obligations (e.g. contributions to Employment Insurance, Canada Pension Plan, workers compensation, statutory holidays, vacation pay) as well as the cost of any benefits or incentives that you will provide.

4. Variable pay

  • Determine any variable pay for which employees will be eligible.
  • Variable pay includes payments, in addition to the employee’s base pay, such as bonuses, gain-sharing, profit-sharing or commissions, where the payment received is based on performance factors.
  • Determine the amount that each position/employee will be eligible for.
  • Determine performance levels that the company/employees need to achieve to receive variable pay.

5. Long-term Incentives

  • Determine if there are any long-term incentives that you are willing to tie into positions in the company, such as: stock options, employee share ownership or long-term cash incentives.
  • Determine how you are going to measure employee performance in order to receive these incentives.

6. Benefits

  • Determine whether you will be offering benefits as part of your overall pay strategy.
  • Determine the types of benefits for which employees can be eligible (e.g. medical coverage, extended health insurance, dental insurance, life insurance, disability insurance, health spending account, etc.).

7. Rewards and Recognition

  • Determine additional ways to recognize and reward employees in order to enhance your pay strategy.

Paying fairly is the first requirement for an effective pay strategy. It is important to ensure that all components of pay (including base pay, salary increases, and bonus or incentive compensation) are well thought-out, easy to explain, and are considered fair, in comparison to both the external market and internally within your company.

For assistance in creating an effective pay strategy for your Vancouver-based small- to medium-sized business, please contact Clear HR Consulting.

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