Setting Salary for New Hires

By Matt Cholerton Tuesday, October 11, 2011

For many companies, setting the salary for a new hire is a huge challenge. You need to attract the right person, retain them after hire, stay within budget, and have a salary structure your organization can grow with. Getting familiar with some of basic pay practices can help you to feel more comfortable doing this yourself.

  • Find your midpoint.  Arrive at a target annual salary number. I like to think of this as your fulcrum - other factors will pivot off this number. There are plenty of good resources online to get you started -, and all have position descriptions and salary benchmarks. Browse and for companies and jobs similar to yours - occasionally salaries are included, which gives valuable benchmarks.

    Another trick is to call a staffing agency and ask for input on the market salary range for your position. I’ll stretch to say this is not an underhanded strategy because it does give the agency the opportunity to convince you to use their services (at a fee of 15%~20% of annual salary). Ideally, your midpoint considers the position’s duties, the size and stage of your company, your industry, and geography. Don’t exhaust yourself on these points as your general midpoint investigative work will do much of this for you.
  • Match job duties: When researching, closely match job duties and titles to ensure they are aligned. Compare responsibilities, scope of job and decision making authority. Titles are far from standard across organizations.  A ‘Web Developer’ or ‘Accountant” has a wide range of variance in the duties and responsibilities they perform. Match duties, titles and salary points across a number of jobs and sources until you feel comfortable with a midpoint.

    Small companies often have positions with responsibilities across functions. For example, your receptionist (at $32,000) might do occasional sales support ($47,000). Don’t be afraid to blend these to create a midpoint (i.e. 75% of $32,000 and 25% of $47,000 = $35,750).  If you increase the sales support tasks for the role you will have an idea about how to fairly adjust salary.
  • Consider your compensation strategy: Do you want to pay market as a company or for this role? Do you have the brand recognition and amazing benefits to pay below the market range and focus on candidates that truly want to work for you? Do you want to pay above the market range to fill the spot quicker or to remove money as a turnover factor? From economic conditions, to time-to-fill, to reputation there are many aspects to consider when crafting your compensation strategy.
  • Create a salary range: Starting with your midpoint, create a range. 20% above and below the midpoint is a good place to start. Our Receptionist/Sales Support employee might have a range of $28,600 - 42,900.

    Generally, entry level positions have a skinnier spread and higher level roles have a wider range.  For example, an Accounts Payable Clerk might have a range of $35,000 - $45,000 and the Director role spread from $60,000 to $100,000.

Though compensation experts won’t easily admit it, there is plenty of subjectivity and discretion involved in setting ranges, job matching, and strategy. There is no magic key, but there is an art and a skill you can develop with practice. Use these basics, do your due diligence, be confident and iterate as needed!

*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.

More By Matt Cholerton
Leave a Comment
* Required
* Required, will not be published