One of the biggest challenges I’ve seen small businesses struggle with is knowing how best to compensate their employees.
On one hand, small business owners – especially those with heart – want to be as generous as possible with their employees, and often start compensation for a new employee at higher than the market average. This can present challenges down the road, starting with the obvious (too high of a payroll burden has been the sinking stone for many small businesses), to complications that may not emerge until some months or even years later, for example –
- If your employee turns out to be a rockstar, how do you reward them for their excellent work when you’ve already maxed out the level at which you can compensate them?
- If your employee turns out to be average, and you later bring on a rockstar to join the team in a similar role, how are you going to reward on the basis of performance versus seniority?
- As your company grows and you open up new roles with varying levels of responsibility, are you going to be able to afford to pay *everyone* proportionately the same amount above market average?
On the other hand, I have seen unfair employee compensation functioning as a huge blind spot for small business owners, even those who say they have the intention of operating with conscious business practices.
Just as one example, I recently had a client with four receptionists working at their front desk, all of whom had nearly identical job responsibilities, length of time with the company, levels of education and prior work experience, and all of whom were making a different hourly rate.
You could line up those four employees in order from the highest paid to the lowest paid, and I kid you not, the employee with the highest rate of pay was also the employee with the lightest complexion, and their hourly rates of pay decreased in exactly the same order as the darkness of their complexions increased.
I am certain my client did not intentionally set out to pay their employees on the basis of skin color, and in their mind, “That’s just the way it worked out.” After auditing their business, I made the recommendation to standardize the criteria they were using to set their rates of pay, and their response was, “We think it’s appropriate to have ‘a range’ for each role and to use our discretion when hiring.”
While that might sound appropriate, I strongly believe that it’s actually NOT, and here’s why –
When a company has a “range” of compensation they are willing to offer a new employee, if they are acting in the company’s self interest, they will start negotiations at the bottom of that range, or maybe even slightly below the range they anticipate will be the final agreement point.
Conversely, when a potential employee is acting with confident self interest, they are going to negotiate for a higher rate of pay than what they are initially offered.
Sounds like a textbook case of two parties advocating for their own interests but knowing they will eventually reach a fair agreement somewhere in the middle, right?
But here’s the thing: when entering a negotiation, every person is going to have a different sense of their “worth” to the company, a complicated equation that factors in not only their individual history and personal attitude, but what they know their chances are of finding a position on the basis of their gender, ethnic background, and other factors.
In other words, if you’re not a straight-presenting white male, you may not feel your “self interest” lies with negotiating the highest rate of pay possible, but rather your “self interest” may be to accept what is offered now, because you don’t know when another door of opportunity is going to open – in short, you’re going to believe yourself to be in a weaker bargaining position. This may or may not even be a conscious decision, so much as an unconscious operator that governs your levels of confidence while negotiating your rate of pay.
In my opinion, this dynamic plays a big role in shaping why we still have a significant pay gap on the basis of gender, race, and other aspects of identity and appearance – and it’s not good enough for employers to say “that’s just where the negotiations ended up”.
Although this problem of systemic pay inequity may be too big for any one person or small business to solve, if you have the intention of bringing consciousness to your business practices, then with some planning and forethought there is a way you can at least do your part in working towards a system of transparency and justice in the way you compensate your team.
I also know that if you are like most small business owners, you’re probably already so overwhelmed with the amount of work you have and the number of details to think about, that adding yet another system to your business might feel like it’s going to send you into overwhelm.
Believe me, I can relate to the feeling of overwhelm and I sympathize, but I also SO strongly believe in using business as a vehicle for creating justice. That’s why I’ve decided to create an easy-to-use tool that will help you standardize your compensation structure with a LOT less of a time commitment from you!
I’ll be including the Salary Transparency Tool in my monthly video training series, which will launch in early 2017, so please stay tuned. Better yet, make sure you’re signed up for my Love Letters, and you’ll hear from me the moment the tool goes live.