Getting Started with Compensation and BenefitsTomChilders
This is one of those topics that is part philosophy, part market and part legal. As always, the legal parameters will set the minimums for what you must offer, for example minimum wage and minimum benefits. The market will define how far you might need to deviate from the law to be successful [in your market], and your philosophy will guide you on how far your variance from market will be.
As for legal minimums, things change so you need to stay on top of it, but there are some resources that can help. US Department of Labor Wage and Hour Division can keep you informed on federal and state minimum wages and more. The SBA section on required employee benefits covers worker’s compensation, disability insurance, social security, unemployment insurance, leave benefits, and family and medical leave, but in all this you need to make sure you know state and federal requirements (state labor office info via US DOL).
To know where the market is you should talk to people in your market. If you talk to enough people you can start to get real feel for pay and benefits. As another data point, go onto one of the online job boards and find postings similar to your need(s). Another source to turn to for pay, job outlook, growth, pay by state, etc is the Occupational Outlook Handbook and/or Occupational Employment Statistics from the Department of Labor, Bureau of Labor Statistics. It takes a little time but it will give you a comfort to work within.
Now comes the part where your philosophy comes into play but beware it is not as simple as you get what you pay for either. There is a motivator-hygiene theory that suggests pay is a hygiene factor that does not motivate but can lower motivation (for more on this, Google Two-Factor Theory). At the same time, you need to pay well enough to compete, allow an established standard of living, and express your appreciation and value of someone’s contribution.
Once you have arrived at where you want to be, you are ready to go to market and this will be your acid test. You can read the candidates and know where you are but for those of you new to this be prepared for questions about the frequency of reviews and raises. While this is a topic into and of itself be prepared to answer it. Plan on meeting inflation and/or the competition and doing this at least annually at a minimum.
For more on this topic, see the resources section. Two really good articles for those early or new to this are the FitSmallBusiness.com articles.