Setting Compensation Rates

Ideally, the right compensation rate for any position will fall on a precise, narrow line, not quite high enough to incur risk or overstretch the company budget, but not quite low enough to invite stepping stone hires or let talent slip away. 

First, you’ll need to establish a range. Your initial range may be wide and may be based on enquiries with industry organizations or the Bureau of Labor Statistics. The BLS can offer general salary ranges based on current trends and the status of various industries. As your research progresses and your assessment of the competition becomes clear, the range will probably narrow. You’ll need to make adjustments based on your geographic area, for example. Then you’ll need to account for competing offers from similar companies in your area. You’ll also need to compete with other local companies from unrelated industries that offer similar jobs. 

Once you’ve established a range, you can make offers that fall within that range and vary based on a candidate’s experience and qualifications. It’s easy to lean toward the safe, low end of the spectrum if the risk-reward ratio is low. For example, you can lower your offer if the position draws a large pool of applicants with minimal training and experience. But calculating compensation becomes challenging when employers need to compete for highly qualified applicants. 

If you don’t have the budget resources necessary to make competitive offers, consider raising your edge by increasing your benefits package. You may win over talented candidates by offering upfront enticements like signing bonuses. But be wary. Hiring and training can be expensive, and it can be easy for an applicant to agree to an offer at first and then be drawn away by another company before you realize returns on your investment. In this case, an upfront incentive might simply raise the value of your losses. It may be a better idea to draw a hiring incentive out over the first six months or year of employment. This can give you enough time to induct a new employee and make her feel settled and valued.