Deciding What to Pay Employees

You’re finally ready to hire a new employee. But before you sit down to your first interview with a candidate, you need to determine what salary you should offer. How do you settle on an appropriate pay figure? Here’s a guide to arriving at a fair price.

• Look at your payroll. Review what you’re paying current workers with similar roles. Examine your budget and determine how much value you anticipate the new employee will add. Between these two figures you should start to get a sense of what your company can afford to pay the new hire.
• Write a clear job definition. Salary negotiations get fuzzy when you don’t have your job requirements in writing. Define exactly what you need the new hire to do. Once you have a list of needed skills and experience, you can use it to discover what the market rates are for companies needing workers who can do those tasks.
• Do some research. Next, benchmark the figure your budget dictates against industry norms. With today’s online job portals, such as Monster and Indeed, it’s fairly easy to learn what other companies in your sector are paying for a position. Be sure to check the job skills required and experience required more closely than job titles. Companies may use the same title, but the actual job might be completely different. You can also check jobs on Craigslist or other portals that cut data by geography to get a sense of the going rates for a job in your particular market.

  For more precise research data, consider a paid database such as PayScale.com, which breaks information down by years of experience, geographic region, and other factors to paint a more precise picture of going rates. So you could discover what a plumber in Minneapolis with more than five years of experience is making -- and what a midrange salary is for them, or perhaps a salary at the 25th percentile.

• Ask the government. If your job has any counterpart anywhere in the federal government, you can look up a comparable pay rate. The U.S. government has 15 pay grades and publishes federal employee pay scales for both civilian employees and military personnel.  
• Decide on a pay range. Smart employers don’t name a number, but establish a range of pay within which they are willing to set the salary. This leaves you wiggle room to evaluate each candidate individually and decide where they should fall within the range based on their experience and potential.
• Consider raises. Most workers expect to be eligible for a raise six months to a year after hire. So keep in mind as you set your proposed pay range that this worker’s salary will likely rise and soon, assuming they meet your expectations.
• Don’t forget benefits. When you’re comparing pay ranges in your industry, try to determine the range of benefits other companies are offering. If your health care plan has a lower required worker premium, you might be able to pay less in salary than a company that makes their workers pay most of their health care and still present a competitive package.
• Negotiate. Once you find a candidate you like, make an offer. If they balk, you’ll have to decide how badly you want that particular person. If you think they’re your ideal hire, consider countering with another offer.

Don’t be afraid to negotiate before arriving at your last, best offer. The applicant may want a few perks that you could grant in exchange for a slightly lower salary. One option is to move the raise review timeframe forward rather than offering more pay now.

Business reporter Carol Tice contributes to several national and regional business publications.