Compensation and Benefits Plans for Small Businesses
As an Executive Coach and Fractional Integrator, small to mid-size businesses are my primary clients, and every one of them are concerned about finding and retaining strong employees. Unfortunately, most small to mid-size businesses do not have well-conceived compensation and benefits plans or strategies.
It is critically important that any business who intends to employ multiple people has a PLAN for compensation and rewards. This plan should be simple and easy to understand; and it should be reviewed annually and updated as needed.
Create your Compensation and Benefits Plan:
What should business owners be thinking about as they create their plan? There are 3 key components that must be considered if you want to attract and retain the people you need:
First, think about culture. Yes, before compensation or benefits, think about culture. Is our company a place that the right people would want to work for? These are key aspects of a strong culture:
· Do you have attractive, clearly defined core values? Are they real in your company?
· Are there positive relationships? No one wants to join a negative, conflicted, or toxic environment.
· Are roles and accountabilities clearly defined? Most people want to win so expectations must be communicated clearly. And do people have the tools or resources they need to succeed?
· Are individuals/teams verbally encouraged and are wins celebrated?
Remember this: all things being equal, culture wins! Unless there is a meaningful financial advantage to go someplace else, most people will stay with a company that they enjoy!
Second, think about compensation. It’s always a challenge for small businesses to pay competitive wages due to financial constraints. The best way to manage this is to have at least 3 levels of responsibility within your company and define the pay scales for each level. Even if your company has only a few employees you can create a pay grade structure. This is where I typically have to offer help to my clients as most small business owners do not naturally think this way.
I think it is always good to have a variable component to compensation. This may take the form of commissions (as in sales), bonuses for individual performance or achievements, or bonuses for departmental or company performance (e.g., profitability, customer satisfaction, no defects, etc.) The most important thing is to keep it simple and easy for everyone to understand.
The question I’m frequently asked is, “How much should I pay my employees?” Most of the owners I’ve worked with want to compensate their people as much as possible, but they must find the sweet spot between what the company can afford and what the market demands. PayScale and GlassDoor both offer free online calculators for calculating median salary ranges for positions in your industry and location.
The third key component is benefits. Again, this is tough for many small businesses. I advise my clients to have a plan to start small but increase their benefit offerings as the company grows. The seven most desirable benefits that I’m seeing in the marketplace today are:
1. Access to health insurance (either partially paid or fully paid by employer)
2. A flexible work environment
3. Paid time off (including FMLA type benefits)
4. Employee wellness or well-being programs
5. Student loan assistance programs
6. Professional development programs
7. Retirement programs (this benefit moves higher on the list as your employee ages)
This is just a quick overview of the important things the owner of a small to mid-size business should be thinking about. It is critical that the business owner create a written budget and a compensation plan so they can have a shot at recruiting and retaining the best talent possible! As you do this, keep in mind that a best practice is to incorporate transparency as part of the strategy.