Setting Salaries is easy, right?

Setting salaries for your staff is always a tricky thing to do. It’s especially hard if you’ve never done it before, because you probably don’t even know where to start. On the one hand, you want to pay enough to get or retain the best possible talent. On the other hand, you don’t want to overpay. What’s are you to do?

First of all, don’t panic. Your goal should be to attract good talent and pay them fairly. When it comes to the exact amounts you should pay, however, You never want to pay more than the job is worth to you. That’s just good business.  A salary is like any business expense–it’s an investment, and you should get a return. So start by deciding the top amount you’d be willing to pay.

The best way to determine that ceiling is to ask this: How much more valuable will this person make the company? Your answer is the most you’d be willing to pay that person when it comes to their salary.

For a salesperson or business development employee, that question is easy to answer. These type of employees are revenue generators, so you can just ask yourself if the sales they’re generating covers their salary. If your new sales candidate can bring in $500,000 in profits, then it might certainly be worth it to offer a $200,000 salary plus commissions to bring them on board.

So now you know the most you’ll pay. Next is to figure out the least you’ll pay. This is where the market comes in. Market rates set candidates’ expectations. Sometimes, the market underprices value. Truly excellent knowledge workers do ten times the work of merely good ones, but they’re only paid 20 to 30 percent more. Other times, the market overprices value (can you say “CEO salaries”?). Either way, candidates will expect you to at least pay market rates unless you can offer them alternatives. There are many sources out there that are specific to your geography that will aid you in establishing the markets high or low salary range.

When all the research is done, you’ll pay a combination of what the job is worth and what the market demands. It’s also critical, to consider each new hire individually. As much as we all love salary bands, you shouldn’t let the standard process blind you to the need for exceptions. When you’re hiring a salesperson with close personal relationships to your five hottest prospects, feel free to pay way above market. I sure would.

Beware the trap of complicated or confusing commission percentages with the dollars you pay your salespeople.  If you believe your commission percentage is right, let your salespeople take home as much money as they can. I’ve seen companies chase away phenomenal salespeople by getting greedy. They see a salesman taking home $1 million a year in commissions, they get jealous, and they cut commissions or fire the salesperson. Heck, if a salesperson is pulling in a cool million, let them! That means they’re making tens of millions for your company. Don’t cap their commissions and risk losing the salesperson who lays the golden eggs.

Finally, realize that you have a lot of flexibility if you expand your thinking beyond mere money. Some people value things other than money (yes, it’s true!). You may be able to offer nonfinancial rewards that hook people and draw them in. Flexible hours, casual dress, more time off, telecommuting, and impressive or creative titles can all be offered in lieu of cash. Training and professional development also matter to people! So use the market rates, salary expectations, the intrinsic worth of the job, and your creativity when deciding what to pay.



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