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Growth Strategies

Money Talks: How To Determine Your Employees' Salaries

Money Talks: How To Determine Your Employees' Salaries
Image credit: shutterstock
- Guest Writer
VP of Sales, Bayt.com
7 min read
Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.

Salaries are one of the most critical aspects of talent management. Although employees care about a multitude of different attributes when selecting a job, such as the job responsibilities, management style, opportunities for career advancements, as well as training and development, money remains a very important factor in the equation of hiring and retaining talent. Many companies find it quite challenging to come up with their salary decisions.

There are so many different factors to be taken into consideration. What is the employee’s career level? How much value will they add to the company? How profitable is the company? What is the state of the economy like? What are the laws and regulations? What is the cost of living? You will quickly realize that the salary question takes into account much more than the amount companies afford to give away at the end of each pay period.

With so many elements at stake, the decision becomes more and more complicated. Although determining salaries and pay structures is a concern for all businesses and organizations, startups and infant businesses may have a bigger challenge in this matter. Having to make such critical decisions for the first time, they may be unaware of the many tools and strategies that companies can use to determine their salaries and pay structures. 

Here are some of the most essential elements and tools that can be used to make salary decisions easily and much more accurately:

1. Internal pay scales
Most established companies have a specific pay scale that they generally adhere to. The pay scale usually plots salary ranges for different positions in each unique department. It also indicates the salary progression as the employee accumulates more years of experience and tenure with the same employer. Using pay scales, the employer gains an idea of the cost of their employees’ salaries over a longer period of time, which as a result enables them to make well-planned decisions regarding annual raises, bonuses, and such. Pay scales are typically a function of human resources but are determined with the input and approval of management. At the end of the day, the manager of each department or team is the most involved in the inputs and outputs and has the most accurate idea on the appropriate compensation for the type of work the employees are accomplishing. The point is: pay scales should recognize the level of knowledge, skills, education, years of experience, and any other competencies that are essential for a particular job. These elements come together to determine an appropriate salary at each career level, but also serve as a general framework for what a particular company or organization affords to pay its employees.

2. Industry and market benchmarks
Without doubt, managers and HR professionals do not arbitrarily pick their salary ranges and pay rates. Even when constructing their own pay scales, they often need to look at labor laws, market averages, and industry benchmarks beforehand. This is to make sure that they do not under-compensate or over-compensate their employees for their work, that they stay in a competitive position among other employers, and that they do not violate any minimum wage or union laws. But researching all of these different elements and coming up with a number that addresses the aforementioned concerns can still be very cumbersome and time-consuming. Employers are often too busy to dedicate the time for such a process and may not even have the expertise or the tools to conduct an in-depth compensation analysis. Because companies truly need a tool to help them benchmark and gain in-depth salary information, Bayt.com introduced the region’s first Salary Search tool. Thousands of employers across the Middle East and North Africa (MENA) are using this tool to search salaries based on specific locations, industries, positions, career levels, and many more criteria. For example, an employer can request to view the average salaries for everyone who works in digital marketing in Dubai. Another employer may want to view the salary ranges for industrial engineers in Kuwait. Such information is nowadays easily accessible and of great value. Using a tool like Bayt.com Salary Search, employers can benchmark against real-time industry data; analyze and compare employees, positions, or entire pay structures; and make confident decisions regarding their salaries.

Related: Tackling Conflict At Your Startup By Finding Neutral Territory

3. PrevIous salarIes
Another tool that employers commonly rely on when determining their pay rates is knowing the candidates’ previous salaries. On a job application or during the interview stage, an employer may ask the job candidate how much they were paid in their previous position(s). The number given by the job seeker would be used as the benchmark and would help the employer determine how much to offer. Job seekers who use Bayt.com have the option of listing their previous salaries as well as their target salary, which helps employers screen candidates before conducting an interview or moving forward with a particular applicant. Likewise, employers have the option of stating their salary on their job descriptions. However, at Bayt.com, we discourage employers from doing that. Studies suggest that the party who reveals the salary expectations first will have a weaker position during the negotiation process. Further, when you reveal salary information in a job posting, candidates might be swayed by the money and not even care about the type of role being offered. You don’t want to hire employees who are money-minded. There are several more precautions that you may need to be aware of when it comes to revealing salaries that you can check out on Bayt.com. 

4. NegotIatIon
One thing to keep in mind is that salaries aren’t set in stone. Most often than not, job candidates and employers engage in a negotiation phase. This could start during the job interview. Employers often ask about salary expectations, which would let them know if the job candidate will fit or break their hiring budget. Job seekers are sometimes first to bring up the salary question during their interview.Once a job offer is extended, negotiation often takes place in order to arrive at the most reasonable compensation. Some companies, however, are inflexible and do not negotiate their offers. It all depends on what you have budgeted for the position. However, it is advised that you begin by offering a smaller amount than what you can actually pay the employee and, if necessary, negotiate up.

5.The full package
Another thing to remember is that compensation includes more than just the salary. Most compensation packages include benefits. Things like health insurance, transportation, housing, education allowances and such are to be considered when looking at and negotiating a salary. These benefits have monetary value that you could even list and explain for a potential employee.Some companies prefer offering lucrative benefits in lieu of higher salaries. Others offer competitive salaries but little to no benefits. In either case, it is important to look at the value of the compensation package as a whole.

6.Added value
Finally, keep in mind that salary decisions can also be circumstantial. If a company is interviewing an outstanding candidate, who has a very impressive experience and skillset, yet an expensive salary expectation, it is not unwise to bend the salary ranges a little bit. When employers are truly interested in hiring the best of the best, the chances are they will need to offer more in return. As a result, hiring managers need to evaluate the “added value” of a new hire in order to determine how much they should be compensated. Ask yourself questions like, “how much is their experience worth?”, “Are their skills in demand?” What about their education? Their potential? These questions are often answered on a case-by-case basis to determine the right compensation package.

Related: Understanding The Middle East's Skills Gap

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