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10 tips for keeping a lid on salary costs

Control variable costs.

Sounds like sensible, Business 101 kind of advice, doesn't it?

The trouble is that most small businesses have only one variable cost -- salaries. Pay too much and you'll be out of business. Pay too little and you'll find yourself desperately hanging out the "help wanted" sign.

That means settling on the right salary for your workers can be an ongoing small-business challenge.

Erisa Ojimba, compensation consultant for Salary.com, an online salary consulting company, says what you probably already know: If you're paying less than the salary midpoint, you'll probably have trouble finding and keeping employees.

"You probably don't want to hire people who are desperate enough to take a job that pays significantly less than somebody down the street is paying for the same job," she says.

Here are 10 suggestions for avoiding that trap, while still keeping the lid on your salary budget.

1. Do research. Make sure your salaries are in the average range. While you may not be able to compete with the top payers, it doesn't make economic sense to lose people constantly because they can make $2,000 a year more down the street. Replacing them will cost more than that.
Salary.com offers a free search engine that allows employers and employees to research salary information compiled from surveys of various industries. Other resources include the federal government and trade organizations within your industry.

2. Give bonuses, not increases. That way, the base salary stays the same, but the total package is competitive. If your company does particularly well, the employees do well too, a concept that seems fair to employees -- and a sense of fairness is critical to employee satisfaction.

3. Be flexible. Big companies may not be able to write their policies around employees' needs, but a small one can afford to accommodate special situations. Ojimba says employers worry too much about setting precedents. She believes employees understand when you cut a special deal as long as a similar deal is available when they find themselves in need of it. In return for flexibility, employees may be willing to accept cash compensation that is less than they could get someplace else.

4. Up the emotional compensation. Remember most people work not only because they need to earn money, but also because they take satisfaction from making a contribution. If one component or the other is missing or out of whack, an employee will leave. As Jim Chandler, a sales consultant in Fort Worth, Texas, observes, "People go from job to job looking for someone to say, 'Charlie, you're doing a good job.' " So don't be stingy with encouragement and praise -- it doesn't cost anything. Chandler offers this rule of thumb: "For every criticism that you offer, tell people three times what they are doing right."

5. Be willing to hire smart people who need only training, even if you think they won't stay around long. As Chandler says, "I'd rather have passing brilliance than permanent mediocrity." Ojimba explains this philosophy another way: If you feel you simply can't pay market wage, then, she says, "Look for smart people and be willing to train them. You may spend $4,000 or $5,000 on a combination of formal and informal training, but in the end they will have learned the business, appreciate your commitment to them and may be willing to stick around longer than they would have otherwise."

6. Get rid of any caps in commission-based jobs. Phyllis Jacobsen, general manager of Shields Bag & Printing in Yakima, Wash., hasn't had an opening in her sales department in two years and her salary budget is firmly under control, because what salespeople make is tied to what they sell. The more they sell, the more they make. For people who work hard, Jacobsen says the sky's the limit. "Every single account is commissionable; there are no house accounts. If they sell it, they make it. We just keep moving the carrot out further and further."

7. Look for somebody else to do the job. Ojimba recommends analyzing each department or responsibility, looking for opportunities to lower costs by outsourcing, which can lower costs and provide better service. At the same time, she warns that outsourcing can reduce commitment, consistency and control. Make sure you're not giving up more than you get.

8. Move things around. Allocate resources to ensure that every employee's talents and abilities are used to the maximum. Temple's Deckop says many people are mission driven. If they feel they are indispensable, they'll behave that way.

9. Share the risk. Talk to employees often and honestly. Let people know when the company is doing well and when things are going badly. Employees who understand the risks are more likely to share their ideas for solutions and to ride out the bad times because they feel part of the operation.

10. Take a look at your own salary. In small companies, news travels fast. If the boss is making more than employees think is equitable, you'll create resentment and that translates into expensive departures.

Jennie L. Phipps is a contributing editor based in Michigan.

-- Posted: July 20, 2000

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