The Power of Base Pay

You're having trouble attracting good workers. Your key employees areinterviewing elsewhere. What can you do? For starters, create a bettercompensation system. Family companies often have problems with hiringand retaining employees due to an inconsistent or insufficient paysystem, according to J. Marty Nowlin, a consultant at Crowe, Chizek andCo., in South Bend, Ind. In the company's Summer 1999 newsletter,Capital Ideas, he explains how to develop an effective, market-drivenbase pay system:

• Document your jobs. Document the responsibilities andfunctions of each job in your firm. Then have each employee fill out ajob questionnaire detailing what he or she does. Use both to createwritten job descriptions.
• Group jobs. Based on the job descriptions, create an internalhierarchy by ranking each job from lowest to highest in terms of valueto your organization. Then look for clusters in the hierarchy, and groupthe positions in appropriate grades.
• Gather market data. Obtain recent surveys containing pay datafor your line of business and location. To find them, inquire at local colleges, large employers, human resource groups, chambers of commerce,and on the Internet. Match your jobs to common positions at similarcompanies in your industry or region. Don't expect perfect matches, butuse other positions for comparison.
• Create pay ranges. Use the data to fix a salary midpoint andrange for each grade of positions. You may find, for example, that thedata indicates a midpoint salary of $48,000 for a certain grade, with arange from $36,000 to $60,000. It is likely the salary range for a givengrade will overlap with ranges from the grades immediately above andbelow.
• Implement the system. Some of your employees' current pay mayfall above or below the new ranges. For those underpaid, considersignificant adjustments consistent with good performance. For thoseoverpaid, you may have to hold adjustments for a few periods. To reducethe risk of losing overpaid employees, explain fully how you devised thepay system, and that it is based on market rates.

Once your system is set up, you should consider integrating aperformance evaluation and feedback system. That way you will be able totie pay to performance, rewarding employees who are excellent performerswith higher pay adjustments.

And don't forget that the key to maintaining your system into thefuture is documenting new jobs, redocumenting revised jobs, andobtaining new pay data on a regular basis.

Copyright 1999 Family Business Publishing Co.

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