Contributed Column

Personnel Points

by Dave Mount, Westaff

How much should I pay?

Two of the biggest problems that owners and managers face are what to charge customers and what to pay employees. I won’t go into the vexing problem of what to charge and will spend this column talking about compensation.

Employees deserve to be paid a fair wage. That is a given, but entrepreneurs often think of an employee’s paycheck as a reduction in pay for the entrepreneur. That cannot be further from the truth, although, in the short run, it may be more of an investment in the future than a proposition that has an immediate payback.

Every owner and manager has to come to grips with the question of pay at some point, and taking a proactive approach to this will help ease the heartburn later on.

As a company grows, management should develop salary ranges for various positions. The rate for each position should be considered the midpoint in the job category. Many companies then take the midpoint amount and create a range for each job — the minimum is generally 80 percent of the midpoint and the maximum at 120 percent of the midpoint. This creates a framework for salary management that can carry over to the annual budget.

One caution on this is that the minimum can never be lower than the Vermont minimum wage. This wage is adjusted annually by the amount of inflation. The Vermont minimum wage, by the way, is the third highest in the nation and the highest east of the Rocky Mountains but that is another subject. For now, the issue is that, in a salary management protocol, the lowest salary for any one particular position cannot be below the Vermont minimum wage.

The annual amount of the Vermont minimum wage is generally published in the local newspapers and, if you miss that, it can be found online.

All of that is background but the problem still is that you have to fill in an amount in the midpoint column to get anywhere, and you need to determine what that should be.

A good starting point is the Vermont Department of Labor. It has the results of annual employer surveys, and they are found online. There is some work involved in getting the data you will need, and I have always found that the Department of Labor amounts are higher than I would have expected, but that is because of the broadness of the categories used. What we have here is a starting point, not an ending point.

Another way to find data is from interviews with prospective employees. Pay attention to the salaries that they tell you they earn and their progression to get to that point. This gives you another benchmark. A word of caution here is that some career consultants advise their clients to quote their salary plus benefits. If you are providing benefits, you will get double-dipped if you do not know the basis a prospective employee is using, so be careful and ask questions.

A third way to get salary information is through your friends and colleagues in business. Ask them what they are paying for similar positions. Most of your business friends will be happy to share this information with you. I would not call someone I did not know and I definitely would not give salary information out to a stranger, but I will always share with a friend or acquaintance.

With information gleaned from three sources, a definite picture will develop as to what that midpoint amount should be.

Now with all of the information collected, you are in a position to establish a salary scale.

Use the averages you received above to establish the midpoints you needed. The last step in the process is your judgment — use it to finalize your company’s midpoints.

By using the “20 percent from minimum to midpoint” rule, you are able to establish ranges for each position. You may conclude that 20 percent is too much, so settle on 10 percent or some other amount, but do establish minimums, maximums, and midpoints.

Now you are in a position to make sensible and coordinated offers to prospective employees.

Dave Mount is the founder of Westaff in Burlington.

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