Smart Compensation Strategies for Small Employers: How to Maximize Your Budget

What’s Different About “Small Business”?

When it comes to running compensation, small business have several challenges, says Wudyka, who is managing principal of Westminster Associates in Wrentham, Massachusetts. His tips came during a recent webinar sponsored by BLR. Small businesses, he says:

• Need “flexibility.” Small businesses need flexibility in anything they do when it comes to HR planning and programming.
• Must “do more with less.” Because they have fewer people they have to be lean and mean.
• Have to “go the extra yard,” Therefore, people have to go the extra yard to accomplish their goals.
• Have fewer “administrators” and “specialists.” Especially in HR, there are usually only a few people to share the workload and maintain the expertise.
• Limited budget. Smaller companies may not have access to resources and may not be able to afford to purchase pay surveys, and so forth that mid sized and larger companies are able to do. A smaller employer may not have the tolerance for strategies that larger employers use, says Wudyka.

All this means that small businesses are often relegated to “doing what they have to do” to attract, retain, and motivate employees at the expense of designing a strategic pay program. For example, they may:

• Pay less than they should. Sometimes employers pay less than market if potential employees are willing to accept less, but his sets up a bad situation; you’re probably going to lose those employees just when they start being really productive.
• Pay more than they should.  Some companies are willing to pay whatever employees demand in order to get the work of the company accomplished. That’s not a good situation either.
• Forego a “structured” approach to managing compensation. Due to lack of time, few administrators, etc., smaller organizations may go without a structure, but that leads to favoritism and discrimination.

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So, What Is Accessible and Feasible?

Let’s look at a “formal” compensation program and see how to extract those elements that can be utilized by the small employer, suggests Wudyka.

Here are the traditional six steps of setting up a compensation program with an optional seventh step of designing incentive plans:

• Job analysis. Figuring out what the job entails.
• Job descriptions. Formally describing the tasks and responsibilities.
• Job evaluation. Determining the job’s worth.
• Pay surveys. In order to price jobs we have to acquire pay survey data and we may purchase it, we may conduct one, or have it conducted on our behalf by a third party,
• Pay ranges. Develop pay ranges around that pay survey data.
• In-grade pay policy. Develop a policy that governs moving employees through pay ranges in order to keep pace with an ever changing pay market place.
• (Optional) Incentive programs. Developing incentive programs is an optional step, says Wudyka, for organizations where it would be appropriate.

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What we can extract from these steps for small employers? Job evaluation is really the only step that Wudyka sees where smaller organizations  will forego using some of the more sophisticated techniques like point factor job evaluation that a larger organization might use. 

The good news is, is that Wudyka has an inexpensive but effective technique that you can use for job evaluation as a small employer

In tomorrow’s Advisor, Wudyka on “paired comparision” evaluations, plus an introduction to the all-in-one compensation supersite, compensation.BLR.com.