A2X Consulting

Whether you’re a small business with just a handful of employees, or you’re running a massive corporation about to go public, the issue of employee compensation remains a key component of your success. You want the best and brightest around you, and you want to compensate them at a fair, market level, and in such a manner that they stick around. But you also need to run a successful business, and over-compensating your employees could end up as a fast path to disaster. How can you determine what your employees are worth to best determine their compensation?

Whether an entry-level intern or a senior executive, everyone wants to make more at their job. You’ll never meet a person who would turn down a raise. But studies have shown that the majority of people do not feel they are being compensated fairly. The surprising thing is what type of employee was complaining the loudest. Generally speaking, those less experienced employees filling entry-level positions felt they were treated the most unfairly when it came to their pay. The majority of executives, while all revealing a desire to make more money, were also the first to say that they were compensated fairly. If a senior level employee was to complain, it was generally because they could specifically identify how much revenue their work brought into the company or how much cash their work was saving ownership. In those cases, they had a finger on how much money they generated, and then looked to their paycheck to see if it felt like a fair match in their eyes.

Of course, most people in these positions still don’t understand that the revenue they generate does not always equate to profit. Generally speaking, most salespeople, or folks in roles that specifically generate money don’t often understand that less of that revenue is profit than they expect. But this leads us to a great place to start determining your employee’s worth.

Track the revenue an individual generates over the course of a year. For some positions it may end up an easier task to determine how much they saved the company, over the need to outsource the work or take on a lesser employee who would need more time or training to do the same task. Do the research to come up with a yearly cost and value for each position in your company. You can easily find benchmarks within each industry that will help guide you to the right determination. Once you’ve got a dollar figure, you can then decide if an increase in your employee’s wage is fair.

What’s great about tying pay raises to quantifiable performance measures is it brings the employee into active participation in the decision-making. They’ll see how what they’re making matches up with the rest of the industry, and gain an understanding of what they’d have to do to make more money in their job.

Follow this up a year later, and you’ll probably see less griping about salaries. Your employees may end up earning more, but it’s a fair bet that the company will be making more as well. Your staff will be motivated to exceed expectations, and you can rest easy knowing that the raise they are asking for can be paid out of the company’s increased profits. Perhaps one or two may still feel they are being wronged, but if their alternative is to head home and work on an online nursing masters, they’ll probably find a way to stick around and truly earn that raise.