In this article we will look at a few areas to consider when setting wages, and show how you can make the process of determining the correct wages for a position a little easier.

Five Steps for Determining Wages

1. Don't Shoot Yourself in the Foot

It's a fact that some employers set their wages too low. The result is an endless succession of inadequate, short-lived employees. Your wages must be high enough to attract and retain good quality employees. Failing to heed this requirement will end up damaging the reputation of your business, and will cost you a lot of time and money in recruitment costs.

2. Wages Must Be Fair 

Wages must reflect the value of the work being performed for them. Over or undervaluing this work will result in employees who feel under-valued, or alternatively who are overpaid – either scenario means inefficiency for your business.

3. What Does Everyone Else Do?

One of the most important factors in determining a suitable wage for a role is the prevailing rate for similar roles with other local employers. This data can be gathered by word-of-mouth locally, and on a wider scale can be found in wage surveys, often published by trade journals and for some areas by the Department of Labor. You don't have to match survey rates exactly, but they should give you a good starting position.

4. It's a Geographic Thing 

If you live in an area with exceptionally high living costs, or where skilled labor is particularly scarce, you will have to pay a premium to attract the right employees to your business. Likewise, you may be able to reduce rates in some areas, if there is a surplus of workers or living costs are low. You can only get an accurate idea of this by spending time learning about the area your business is operating in.

5. No Job Is an Island

When setting compensation levels, it is important to consider how they relate to wages paid for other related roles in your business. If large and illogical discrepancies exist between similar roles' pay schemes, you may find that the social and team dynamic of your company is disrupted.  

Hiring new recruits to do the same job as existing employees but at a much higher rate is a particular example of a wage policy that breeds resentment. If the new employees are worth it, shouldn't you raise wages for the existing employees? Failure to do this may result in your older employees leaving for more fairly-paid positions.

None of this is meant to suggest that you try to artificially manipulate wages, only that you should apply a consistent and fair wage determination process to every role and every employee.

Final Thoughts… 

One thing to remember is the factors driving wages can change with time. If you feel that you are not setting your wages at the right level, there is nothing to stop you revisiting them, using the guidelines above, to determine whether any changes are needed. Benefits packages and performance-related pay are also factors that affect wages, as are intangible factors such as how desirable your company/role is to potential employees.

Every business is unique, but approaching wage determination in a methodical way will always pay dividends.