Every employer has to manage compensation. Some do it much more effectively than others. Let’s take a look at a few of the key factors on which you may want to focus some attention.

Base Pay. Whether you pay an hourly rate or a salary, this is the rate you and the employee agreed upon when you first hired them, or re-negotiated at a later date – perhaps during an annual evaluation, or at the time of a promotion.

While most small employers don’t have a formal or written ‘compensation strategy’, most have a sense of where they want to be in relationship to other employers in their industry or in their proximity. Maybe you want to be known as the market leader, and pay more than others in order to get the best talent. Maybe you want to be competitive, which may place you more in the middle of the market. And maybe you lag the marketplace, perhaps because you don’t necessarily need high-skilled labor, perhaps because you don’t have the resources to be more competitive, or perhaps because you’ve decided to invest more money in benefits, or non-pay perks.

What you need to know as an employer is where you are positioned relative to the market: leading, lagging, or in the middle, and whether that’s the position that serves you best as an employer.

Along with base pay, though, come expectations of increased pay due to experience, high performance, learning new skills, etc.

It’s important that you give thought to how and when you will make those adjustments, how they will impact your budgeting and profitability, and whether they will be sufficient to motivate and retain your people. You also need to be ready to make additional changes if economic or other forces cause faster increases than planned.

When establishing base wages, we also recommend establishing ranges for each position – from starting wage of a position to maximum wage for that position, along with guidelines for when and how to adjust and/or increase.

Incentive Pay: In addition to base pay, you may need to consider incentive pay as an important part of your compensation strategy. Monetary incentives include a wide range of commission structures, bonuses, and referral compensation – all based on specific pre-determined criteria. Other forms of incentive pay include profit sharing and stock options. Even overtime pay and performance related pay increases are forms of incentive pay, as well.

While much more common in some positions than others, and in certain types of organizations, incentive pay can become a significant motivator towards high performance. It is critical, though, that in creating incentive pay plans, you thoroughly consider the criteria, potential costs, and ramifications to individuals and to the organization.

Basic Benefits: Benefits include all of those perks you provide on top of base pay and incentive pay. The benefits you offer may be a fairly small part of your organization’s overall pay plan, or it may be a very significant part of total compensation strategy. Either