Among all the challenges you face as a business owner, few things are more difficult to approach than employee compensation. Between establishing base wages and salaries, distributing bonuses, and giving out raises, you’re bound to get a headache or two managing it all. That said, these issues cannot be ignored. Your people might like working for you and your business, but they won’t stick around if they don’t feel fairly compensated, especially if they can find a better paying job elsewhere.
Employees expect their pay to be fair from the beginning and increase over time (beyond just keeping up with inflation). Indeed, without delivering this expectation to new hires, businesses would have a hard time getting anyone on board, and developing leadership talent would be impossible. The hard part for you is figuring out how to broach this subject, how to decide who gets a raise (and when and why), and how to keep your people from turning on each other in favor of the almighty dollar.
So, if you’re hiring new team members, here are five important decisions to make before giving raises.
What to Do Before Giving a Raise
1. Create a Compensation Structure
As your business grows and you hire more people, you need to establish a system of compensation that works best for you. Some companies keep things simple with a one-size-fits-all solution that delivers the same percentage pay increase to every employee on a regular basis (usually annually). While this approach is equitable and easy to manage, it can negatively impact productivity and employee morale, as there is no clear correlation between performance and pay.
Other businesses might decide that performance and compensation management go hand in hand. These companies conduct regular performance reviews for each employee and give out raises based on how well they’ve done. All employees might receive raises, but the best performers will get a higher pay bump. This method can help motivate individuals to work harder and remain engaged, but it can also create tension between employees, splintering unity.
Both approaches have their merits, and you may decide to create a system that falls somewhere in between. Just make sure that your compensation structure benefits your employees and business as a whole.
2. Match the Market
No business exists in a vacuum. You must pay attention to what your competitors are doing if you plan on thriving in your industry and retaining your top talent. Companies that offer the best compensation packages tend to have a competitive edge. You may need to work with a business coach to give you a broad perspective of your industry’s outlook on compensation so you can match or exceed those expectations. This will allow you to attract and retain the best people.
3. It’s All About Value
When budgets are tight, giving out raises might seem like a burden. Indeed, doing so might result in short-term losses. However, you have to think long term and focus on building your business’ value over time. Your people bring value to your company, after all, and without them, you wouldn’t be able to grow or thrive. By reciprocating and delivering value to your employees, you’re creating a feedback loop that will propel your enterprise forward. In this way, compensating your people accordingly is a major component in talent management and succession planning. If you want your organization to be its very best and last for years to come, you need to invest in your people.
4. Exercise Care With Pay Compression
As you calculate wages for new hires and percentages for raises, be mindful of pay compression. This phenomenon occurs when newcomers make the same amount as those who have been with the company for a long time. Not only might this offend long-standing employees, it may actually devalue their position, as the newcomer’s wage accounts for inflation while theirs does not. In other words, a dollar is worth less today than it was a year ago, and even less so than 10 years ago, and so on.
Pay compression can toxify your workplace culture in more ways than one. Therefore, it’s important to adjust all salaries for inflation and always factor in longevity so senior employees are rewarded for their commitment and experience.
5. Be Upfront About Pay When Hiring
When seeking employment, people appreciate transparency. Companies that clearly outline their compensation packages and potential for growth often entice the best people. So, if you’re looking for top talent, don’t shy away from discussions around pay. This includes mentioning how, why, and when raises are dished out. The more open you are about these matters, the better, as it establishes expectations and minimizes confusion.
There’s nothing easy about raises. But if you take your time and think in the long term, you can develop a compensation system that attracts top talent, keeps your best people from leaving, improves your culture, and ultimately adds value to your business.
At Leadership Resources, our purpose is making the impossible possible through people. We aim to do so by helping individuals develop patterns of success that will decrease stress levels and maximize productivity. Contact us here to learn more about what we do and how it can help your business succeed and grow.
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Your top talent is highly valuable, and therefore also in high demand by other organizations. In this competitive global economy, landing quality people can be challenging in and of itself — keeping them around can be even more difficult. And considering that your company’s potential is directly tied to the potential and performance of its people, you cannot afford to let your top talent slip away.
In our previous post, “How to Keep Top Talent from Leaving Your Company,” we discussed how recruitment, company culture, regular feedback, competitive benefits, and leadership development all contribute to employee retention. Here we’ll further explore how long-term leadership development in particular can help you keep your best talent.
How Leadership Development Keeps Your Best Employees
The Power of Recognition
Effective employee management and leadership development requires plenty of feedback, which should include a healthy mixture of positive recognition and constructive criticism. And while every member of your organization should receive this regular feedback, it is especially important to maintain consistent communication with your best talent. Recognizing your top talent for their input and achievements and pointing out areas of improvement will simultaneously help them further develop their leadership skills while conveying their value to the company. When your people feel valued, they are more likely to stick around.
New Opportunities Energize Employees
There are many ways to develop the leadership potential of your top talent. In-person and online seminars, group training activities, and one-on-one meetings are all part of this equation, but real-world experience is often the most potent form of leadership development. By empowering your top talent to take on new roles and responsibilities, you help them gain crucial insights that are applicable to your organization and at large. This experiential leadership development opens doors for your best talent and lets them know that even more opportunities await if they continue to grow with the company.
Finding the Right Fit for One’s Skills
Long term succession planning is a major focus of all forward-thinking businesses. And a solid plan for the future depends on the advancement of top talent within your organization. Put another way, you need capable leaders at the ready to fill new roles and to take over existing ones when the time is right. Implementing effective leadership development programs not only prepares your top talent for these new positions — it also helps your company find the right positions for the right people. Indeed, employees are more likely to stay with an organization if they feel properly suited for their role and valued for their unique abilities. In other words, as you develop your top talent into strong leaders, they become more integral to the company as a whole and shape its direction moving forward.
The Leadership Domino Effect
The best leadership training programs have a positive, exponential impact on your top talent and all of your employees. As your people grow, they tend to pass on their new skills and knowledge both actively and passively, which encourages others to develop, too. This domino effect strengthens teams and an organization’s culture overall, improving the performance of your current top talent and producing new potential leaders in the process. As a result, you won’t just keep your best talent around — you’ll have even more of it.
Long-Term Success Depends on Long-Term Leadership Development
If you want to retain your best people, you need to recognize their contributions, give them new opportunities, and find the right roles for their talents. Focusing on leadership development helps achieve all of these things and sets your business up for continual success. In this way, effective leadership development, talent management and succession planning are all inextricably linked.
At Leadership Resources, our purpose is making the impossible possible through people. We aim to do so by helping individuals develop patterns of success that will decrease stress levels and maximize productivity. Contact us here to learn more about what we do and how it can help your business succeed and grow at times like these when you need it most.
Read More Among all the challenges you face as a business owner, few things are more difficult to approach than employee compensation. Between establishing base wages and salaries, distributing bonuses, and giving out raises, you’re bound to get a headache or two managing it all. That said, these issues cannot be ignored. Your people might like working for you and your business, but they won’t stick around if they don’t feel fairly compensated, especially if they can find a better paying job elsewhere.
Employees expect their pay to be fair from the beginning and increase over time (beyond just keeping up with inflation). Indeed, without delivering this expectation to new hires, businesses would have a hard time getting anyone on board, and developing leadership talent would be impossible. The hard part for you is figuring out how to broach this subject, how to decide who gets a raise (and when and why), and how to keep your people from turning on each other in favor of the almighty dollar.
So, if you’re hiring in Omaha, Nebraska, here are five important decisions to make before giving raises.
What to Do Before Giving a Raise
1. Create a Compensation Structure
As your business grows and you hire more people, you need to establish a system of compensation that works best for you. Some companies keep things simple with a one-size-fits-all solution that delivers the same percentage pay increase to every employee on a regular basis (usually annually). While this approach is equitable and easy to manage, it can negatively impact productivity and employee morale, as there is no clear correlation between performance and pay.
Other businesses might decide that performance and compensation management go hand in hand. These companies conduct regular performance reviews for each employee and give out raises based on how well they’ve done. All employees might receive raises, but the best performers will get a higher pay bump. This method can help motivate individuals to work harder and remain engaged, but it can also create tension between employees, splintering unity.
Both approaches have their merits, and you may decide to create a system that falls somewhere in between. Just make sure that your compensation structure benefits your employees and business as a whole.
2. Match the Market
No business exists in a vacuum. You must pay attention to what your competitors are doing if you plan on thriving in your industry and retaining your top talent. Companies that offer the best compensation packages tend to have a competitive edge. You may need to work with a business coach to give you a broad perspective of your industry’s outlook on compensation so you can match or exceed those expectations. This will allow you to attract and retain the best people.
3. It’s All About Value
When budgets are tight, giving out raises might seem like a burden. Indeed, doing so might result in short-term losses. However, you have to think long term and focus on building your business’ value over time. Your people bring value to your company, after all, and without them, you wouldn’t be able to grow or thrive. By reciprocating and delivering value to your employees, you’re creating a feedback loop that will propel your enterprise forward. In this way, compensating your people accordingly is a major component in talent management and succession planning. If you want your organization to be its very best and last for years to come, you need to invest in your people.
4. Exercise Care With Pay Compression
As you calculate wages for new hires and percentages for raises, be mindful of pay compression. This phenomenon occurs when newcomers make the same amount as those who have been with the company for a long time. Not only might this offend long-standing employees, it may actually devalue their position, as the newcomer’s wage accounts for inflation while theirs does not. In other words, a dollar is worth less today than it was a year ago, and even less so than 10 years ago, and so on.
Pay compression can toxify your workplace culture in more ways than one. Therefore, it’s important to adjust all salaries for inflation and always factor in longevity so senior employees are rewarded for their commitment and experience.
5. Be Upfront About Pay When Hiring
When seeking employment, people appreciate transparency. Companies that clearly outline their compensation packages and potential for growth often entice the best people. So, if you’re looking for top talent, don’t shy away from discussions around pay. This includes mentioning how, why, and when raises are dished out. The more open you are about these matters, the better, as it establishes expectations and minimizes confusion.
There’s nothing easy about raises. But if you take your time and think in the long term, you can develop a compensation system that attracts top talent, keeps your best people from leaving, improves your culture, and ultimately adds value to your business.
At Leadership Resources, our purpose is making the impossible possible through people. We aim to do so by helping individuals develop patterns of success that will decrease stress levels and maximize productivity. Contact us here to learn more about what we do and how it can help your business succeed and grow.
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