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Employee compensation from A to Z

Attracting and retaining good candidates during a labour shortage is no small feat! Employee compensation, in all its forms, is crucial to keeping your top talent. But how do you decide what wages, raises and benefits to offer?

Setting a new employee’s salary

Congrats! You’ve found an excellent candidate for a vacant position in your company. You want to offer them the most competitive salary your budget can accommodate. Here are four points to consider when setting a new hire’s salary:

1- Your company’s needs

When you’re thinking about hiring a new employee, it’s important to take time to assess your needs to make sure the new hire will meet them. Ask yourself these questions:

  • What are the main responsibilities of this position?
  • What qualifications are essential for this position?
  • How many years of experience are required?
  • How does the position fit in the company’s organizational chart? Will other employees report to this position?
  • What characteristics of former employees in this position helped them succeed or worked against them?
  • What kind of team will this employee be joining?

A thorough needs assessment will help you set the right salary, as you’ll know which comparisons to make with other jobs. For example, if you’re looking for a production supervisor but offering the salary of an operator, you’re going to have a hard time attracting the right candidates.

 

2- Wages and the labour market

Given the current labour shortage, it’s more important than ever to be competitive. This means studying the market. Here are three tools that provide useful information. They’re complementary, so use all three for the best results.

Labour Market Information – Emploi Québec (LMI)
LMI is an important tool that provides extensive information about jobs, in terms of both the usual duties and the requirements of a given position. It’s very useful for ensuring you’re looking at the data for the right position. You can also consult the minimum, median and maximum wages paid for the position and compare data by region.

Total compensation and salaries – Institut de la statistique du Québec (ISQ)
The ISQ provides information on benchmark-job compensation by the type of business and the complexity level of each position. Each complexity level corresponds to a type of duty, a decision making level and the number of years of experience. This is partly what differentiates ISQ data from LMI data, which makes no distinction between junior and senior employees. You may not find the job you’re seeking information on in the table, but you will definitely find one to compare it with.

Corail – Collective agreements database
Collective agreements are public documents, and the Ministère du Travail, de l’Emploi et de la Solidarité sociale makes them available on the Corail platform. In union contexts, salaries and salary increases are quite often negotiated in advance, when the collective agreement is renewed. The advantage of Corail is that you can access more specific data. It’s possible to compare your business with others in the same sector, in the same region or in the same size range. Salaries are historically a little higher in unionized workplaces than non-unionized contexts. However, unionized employees must pay union dues, which is not the case in non-union environments—this could make up for the slightly lower salary of a non-union employee.

3- The company’s financial capacity

Beyond all the information available about salaries on the market, there’s another very important factor that mustn’t be forgotten: your company’s budget. Before hiring an employee, you must assess how much the company is willing to pay to fill this position. 
Financial capacity is directly linked to needs assessment. For example, if the company’s finances don’t allow for hiring a candidate with five years of experience, you will have to determine whether your needs can be met with a candidate who has three years of experience. 
You may also choose to revise the budget for this position by reducing other company expenses. Consider leaving yourself some latitude for salary increases. Setting a salary too high and then having to freeze it for a few years can have an impact on employee motivation and retention.

4- Fairness within the company

Fairness is very important for employees. They need to feel that they are being compensated according to their worth. This doesn’t mean that you have to pay the same salary to all employees who occupy a given position. It simply means that there must be a good reason for differences in salaries.
An employee who understands why there is a difference between their salary and that of their colleague will be more satisfied. More importantly, this understanding has a greater effect on their satisfaction than a sudden salary increase ever could. When creating a new position, you should look at where it fits in the structure of the company. The salary offered must be consistent with what is currently offered in an equivalent position.
Ask yourself this simple question when you’re setting wages: if this salary was to become public knowledge tomorrow morning, would I be able to justify it? 
Pay equity is also a matter of law. In Quebec, businesses with 10 or more employees must comply with the Pay Equity Act.
If you make a particular effort to be fair with each hire, you will make your own life easier when it comes time to implement your pay equity exercise. This will also allow you to avoid having to make unexpected salary adjustments.

What about employees who have flexible pay?

Flexible pay means a salary or portion of a salary that varies according to the achievement of certain objectives. These are most often sales objectives, but they could also be based on productivity.

The four elements mentioned above also apply to this type of compensation. However, you should be aware that by adopting a flexible pay mode, you lose a little control over your employee’s salary. A high-achieving employee will have a salary that reflects their abilities. We suggest doing simulations before presenting the components of the employee’s compensation (base pay + percentage of commission). For example, if an employee sells $500,000 of merchandise and you apply your compensation formula, will you be able to pay them?

How do salary increases work?

Let’s clarify something right away: the law does not require you to grant salary increases, EXCEPT to comply with the minimum wage. Beyond that, raises are at your sole discretion. However, salary increases are a good way to retain employees and remain competitive.
If a company decides to give salary increases, it’s important to establish the bases for these increases and to ensure employees understand them. Here are the two salary-setting criteria most often used by companies:

1- Cost of living

Adjusting salary increases to the cost of living allows your employees to retain their buying power. Rising prices mean that a $20/h salary in 2018 does not afford an employee the same lifestyle as when that same salary was granted in 2016. The consumer price index (CPI) is a good indicator to use. Aligning your salaries with the market also keeps you competitive.

2- Performance

This may involve the employee’s individual performance, the company’s performance, or a combination of both.
When your base salary increases on performance, it is important to establish clear objectives at the start of the year. Employees must know what they have to do, individually or collectively, to earn a salary increase. Individual performance as a measure generally goes hand in hand with the implementation of a performance evaluation system. That said, you don’t have to set the amount or percentage of the increase in advance. 

It is quite possible that, for all kinds of reasons, the company’s performance is not up to expectations and does not allow you to increase salaries as much as planned or even at all. Regardless of the information provided above, you must always keep the company’s financial capacity in mind. You must not increase salaries more than your budget will allow. 

Have you thought about bonuses?

A bonus can be an alternative or interesting supplement to a salary increase. A bonus is a lump sum that is paid to the employee once a year. Contrary to salary increases, which are often considered a right by employees, bonuses are largely accepted as being at the employer’s full discretion. 

What’s more, because it does not affect your employees’ base pay, bonuses are a good way to control the size of your payroll. Over time, bonuses cost a business less than salary increases. Example:

Cost comparison of a 2% bonus and a 2% salary increase
 Salary in 2018Salary in 2019Salary in 2020Additional costs
Salary increase$45,000$45,000 X 1.02 = $45,900$45,900 X 1.02 = $46,818$2,718 ($900 + $1,618)
Bonus$45,000$45,000 + 2% ($900)$45,000 + 2% ($900)$1,800 (2 X $900)

 

Total compensation: Other forms of recognition
Recent studies have shown that a salary increase under 7% has no impact on an employee’s motivation. At 7 or 8%, there is an impact, but in the very short term only. To attract and retain the best employees, you need to think about everything you have to offer as an employer, what sets you apart. We usually think about benefits like vacation, paid holidays, bonuses, group insurance and retirement savings programs. But don’t be afraid to venture off the beaten path. Here are a few examples:

  • Reimbursement of public transit fees
  • Reimbursement of costs of training or studies
  • Advancement opportunities within the company
  • Referral bonus for new employees
  • Discounted gym memberships or access to a gym in the workplace
  • Possibility of working from home
  • On-site daycare
  • Services offered in the workplace (agreement with a garage to perform tire changes onsite, or with a laundry service to collect and return laundry at the workplace)
  • Team and/or family activities (golf tournaments, BBQs, Christmas parties)

Compensation and its add-ons

Implement a compensation policy

Together, all of these elements make up what we call total compensation. They should be listed and detailed in a compensation policy that is understood by and accessible to all employees. By establishing and properly communicating your compensation policy, you send a message to your employees that you have a clear compensation vision within your company. 
Ultimately, this can help you retain and motivate your employees as well as attract new candidates.

Survey your employees

As you can see from the previous section, there are a thousand and one options for benefits, monetary or not, that you can offer your employees.
A successful benefits offer must be in line with your employees’ needs and interests. For example, if you offer the possibility of working from home but what your employees really need is a flexible schedule, you will not boost their job satisfaction.
Why not ask employees to tell you what’s most important to them? An organizational survey can give you that kind of insight. Here are a few tips for a successful survey: 

  • Clearly communicate the objectives of the survey
  • Keep individual answers confidential, but share the overall results
  • Follow up with employees after the survey
  • Be ready to make concrete commitments and share with the employees your timeline for implementing changes 
  • Explain why it is not possible to deliver on some suggestions

Organizational surveys are also a good opportunity to reinforce the corporate culture.

Why is corporate culture important?

Many employees want more than a job that simply “pays the bills.” More and more, workers need to be proud of what they do and to feel like they are making a significant contribution.
A strong corporate culture becomes an important factor in employee retention. If your employees have a strong feeling of belonging to the company and believe in its values, they will be less inclined to accept an offer from a competitor. Since your employees are your best ambassadors, a good corporate culture also becomes an invaluable tool for attracting talent. 

For any questions about employee compensation, contact your CFIB counsellor—they have the answers you need!