Margery McBain, CEO of Gravitate HR looks at the practical steps SMEs can take to manage salaries in light of these stratospheric bonuses?
You cannot compete and you should not try to
The bottom line is that you have to be able to afford your wage bill and if it is not affordable you cannot go there. In many SME businesses the biggest cost is payroll and you have to control and manage that cost to ensure business continuity. The real question is how do you apportion the budget for salaries to be able to attract and retain the skills, knowledge and experience that are central to your business?
People work for you for different reasons
Salary is important and people will have thresholds of earnings that are important to them. Those could be in relation to the market rate for the role, their perception of their self worth in terms of salary, and their own financial circumstances. But salary is not the only factor that influences someone to work for you. It is a commonly held belief that any positive effect of a pay rise lasts just six weeks after it is awarded – so what about the remaining 46 weeks of the year?
Employees look for other opportunities in terms of personal development beyond their salary. These include the culture and environment at work, whether they are respected and valued, possible progression, additional responsibility and the type and scope of work.
Other terms and conditions which cost the business but are not paid in hard currency such as holiday entitlement, sick pay, flexibility of working patterns and leave arrangements are all part of the package and the reason why people work for you.
Be clear about your pay policy
Set out in your terms and conditions how you structure your pay arrangements and how reviews are conducted. There are different mechanisms to award pay reviews – based on RPI, pre determined increments, merit awards or basic salary with additional commissions or bonuses.
What is right for your business will depend on the circumstances of your business – but you need to manage expectations, be clear about how decisions are reached and communicate on time and in writing any changes as this is effectively an alteration to terms and conditions. Check the wording of your terms and conditions to avoid breach of contract.
If you are awarding on merit you need to have some process to assess and agree performance and relative contribution.
If you have a bonus scheme be very clear about how this works so that you can make appropriate payments or not, if conditions are not met. So think through what the bonus structure should be and how it can be affordable and motivating. Communicate business updates and progress towards a bonus so that it is motivating rather than having a negative effect.
At the end of the day, if people want big salaries, expense accounts and deep bonuses they need to secure and deliver on a job that has those terms and conditions – that is their choice.
Whilst they are working for you they will have accepted the terms that you have offered and those are the basis of the relationship between you. If those conditions are not working for you, you need to reconsider – but remember it is not always about money!