Topic for Discussion: What are good pay and good benefits?

Answer: Many employers, of both small and big businesses, make the mistake of thinking that salary is the only thing that matters to their employees. Not true! The right pay and benefits combination for your company is the one that motivates your employees to contribute 100% of their work potential to your company AND improves your chances of retaining them. But how do you determine what that is?

Let’s start with salary or hourly rate, whatever the base pay metric is in your company. Find out what the industry standard is for the various positions in your organization. Compensation surveys are conducted annually by most trade associations, many Chambers of Commerce, and the Federal government. Most study results are published in ranges, with “median” used as the central measure of tendency. Determine where what you pay your employees falls within the range. Make an adjustment for the cost of living in your area. Salary survey results are published in ranges because the same position in New York City is compensated at a higher level than that same position in Wyoming, where the cost of living is substantially lower. You should set base pay at the appropriate median salary for your geographic area. Why? Because this is what the job is worth when it is adequately done.

But who wants adequate performance from employees? Nobody! We want our employees to exceed our expectations. And when they do, we need to reward them with additional monetary and other benefits. Your compensation plans for each employee should include performance incentives that are measurable against specific outcomes. Those outcomes might be sales dollars, margins, reduced returns, whatever is the most appropriate and controllable by the employee. At least part of the incentive compensation should be based on the operating results and profits of the entire organization. This promotes teamwork and camaraderie, everyone’s financial success (including yours!) is tied to everyone else's.

It is a lot of work to design a compensation package for position, which may mean each employee, but you will be well-rewarded in the productivity of your team and your ability to retain them. For each employee, you should have:

• A written job description.
• A set of goals and objectives for the coming year.
• An annual evaluation where you sit down with them and review performance of the prior year compared to goals and objectives and a review of the goals and objectives for the coming year.
• A compensation plan that includes: base salary; incentive compensation based on individual and organization-wide performance; and, other benefits.

Let’s talk about "other benefits." As with incentive compensation, our goal here is to motivate and retain our employees. We want to provide benefits with a high perceived value. Certainly, medical insurance is a benefit valued by all employees. Look at adding life and disability insurance, these are perceived as high value but have a relatively low cost. The value of retirement benefits, such as 401(k) plans tends to increase with the age and salary levels of your employees. Think outside of the box, like the value of an onsite day care center, which can be tremendous if you employ a lot of women with small children.

Finally, make sure your employees have a clear understanding of what you invest in them each year. Send a letter annually to each employee, thanking him or her for their contribution that year. Include a sentence, "Your annual compensation for the current year was $X and was comprised of the following:" Include a list of your total cost of employment, including the employer's contribution to social security and any medical or other insurance benefits you provide. Let the employee know what it costs you to employee him or her, which is far in excess of the individual’s gross salary.

You think about it: Good employees require good pay and good benefits. Your challenge is to evaluate how good they are, and then compensate them accordingly. Are you meeting that challenge?