Knowing if you’re rewarding your staff properly can be a tricky issue, even if you only employ a handful of people. HR expert Vivienne Foster offers some tips on paying employees.

Pay can be an awkward issue for many small business owners. Perhaps it reflects the diffident attitude we have in this country to money: it’s an awkward subject so we tend to avoid discussing it. But, like sex – another taboo here – it’s something we should talk about openly, and not get too hung up on. So, here are my top tips for making employee reward work for you:

1. Do your homework

Market forces will generally dictate salaries, so it’s important that you know the market for the role you want to fill and the economic forces that influence it.

If there aren’t many people in your local area who have the skills or experience you’re looking for, or if there’s a lot of competition in your industry to fill that kind of role, then you might have to pay more to attract applicants, or offer them other incentives to come and work for you.

Do your research on what is the going rate by consulting recruitment agencies, local papers, your trade press or jobs websites. When interviewing candidates don’t feel shy about asking them what they earn in their current job – this can give you a good idea of what you might need to pay in order to attract that person.

2. What’s it worth to you?

If it’s a role that’s vital to your company’s success, such as sales manager or head of your customer relations team, then you may decide that it is worth paying a premium to ensure you attract the right person.

3. Money isn’t everything

Research has shown that salary is an important factor, but actually it isn’t most people’s prime consideration. So what else can you offer applicants?

You need to understand what motivates and really matters to the kind of person you want to attract. Is it a friendly, fun, vibrant office atmosphere? Feeling valued? Or perhaps it’s flexible working conditions or great experience? Remember: a job is more than simply what it pays.

4. Know your policy – and make sure your staff do too

When and how do you review pay with your existing employees? It might be tempting to keep quiet on this, for fear of raising expectations for more money. But, in my experience, honesty and transparency around pay works in your favour.

If you ensure your staff know when you will review their pay, and most importantly, what you will base their reviews on, then everyone knows where they stand.

5. Pay reviews without tears

How often should you review pay? Most companies do it annually, which tends to work well.   You can either do one review for everyone at the same time, or do it on the anniversary of each employee’s joining date. It’s fine to have individual reviews outside of that time, as long as you’re clear on why you’re doing it.

6. How much, if any, increase should you give?

My advice here is to decide which factors will determine your pay increases, and then apply them to each employee.

Sensible factors to consider are:

  • Company performance (this should tell you how much you can afford to pay out in total)
  • Inflation
  • Individual performance
  • Market rates
  • The value of the job/person to you.

You do not have to give an increase to everyone, but you should be able to confidently justify every decision you have made. Be aware that decisions could be regarded as discriminatory. So for example, ensure you treat part-time workers, or pregnant women/maternity absentees exactly the same as others in similar jobs.

7. Linking pay with performance.

Make sure the individual knows in advance what performance you expect to see, and how they’re doing throughout the year.  A salary discussion along the lines of “Surprise! You’ve performed badly so I’m not increasing your pay” will never make for a comfortable conversation.

8. What if you can’t afford to offer pay rises?

If this is an issue, you should be honest with your employees. Don’t fudge the issue or, worse, dishonestly use their performance as a pretext for not offering a pay rise. Explain why things are tight right now, and that you hope to review their salary when business picks up.

In my experience, employees value feeling that you’re being straight with them, and some businesses find that this kind of honesty leads to an increase in company performance as staff pull together to make things better.

9. Bonuses – your flexible friend.

If you can afford to pay people more, then I would recommend you think of paying your staff bonuses rather than salary increases. Bonuses are a more flexible way of rewarding your staff, without increasing your firm’s fixed costs. I’ve worked with a number of small firms that have caused themselves a headache by routinely raising employees’ salaries every year.

You want to reward those workers who’ve performed well, but you also want to keep them motivated – bonuses are a good way of doing both. Also, you can decide to not pay bonuses next year if your business hits turbulence, but you can’t decide to not pay salaries, unless you cut jobs.

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