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Canadian Dollar, concept of business and finance (Devon Yu)
Canadian Dollar, concept of business and finance (Devon Yu)

CHRIS GRIFFITHS

Why you should pay your employees what they deserve Add to ...

Sometimes I ask business owners about their competitive advantages, and then wait to hear how long it takes before they mention their employees. For some entrepreneurs, employees don’t factor high on the list. Others don’t even include their staff on the list at all, unless prompted.

Many believe that things like trade secrets, innovation, design intelligence, quality control systems, streamlined supply chains and pricing advantages are what set their companies apart. But who manages those distribution channels, keeps an eye on quality, fine-tunes the designs, finds the vendors, negotiates prices and executes on the innovations?

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Unless you’re a one-man show, none of the above happens without a team of talented employees.

Ideas are a dime a dozen. It’s executing on the ideas that build a business, and you can’t do that competitively without a great team – and paying competitive wages.

Now, if you work at a startup, you're probably longing for the day when you can pay yourself something, let alone someone else. Worrying about the fair market value of those wages seems like a far off, distant problem. The world of entrepreneurship is filled with stories of small business owners who toiled for years in their enterprises before they got back to the money they were making working for someone else. Many owners pay their employees more than they draw out from the business themselves. In spite of these hard truths, it will be difficult to create or sustain your business’ competitive edge without competitive pay packages.

As I humbly admitted in a previous column about hiring for experience or training a junior, my first hires were on the low end of the pay scale due to lack of resources. A strong pay package is more than just about pay, however. And your industry, product or culture can do a lot of attract and keep staff – but at some point you need to take a sober look at the dollars you are paying and do what’s right for the business in compensating competitively.

One strategy I practiced was to mentally run through my staff and, one by one, imagine that they walked out the door for another gig. What is the impact on the business if they leave? What would I have to pay to find a replacement and get them trained? What was the spread between my pay and the new job that attracted my team member away? The answers will guide you towards a more realistic vision of what that particular position is worth.

Another strategy is to have a frank review of the local market conditions and create a range of what you think each of your team members could command in your area or industry. Where is the dollar amount that you are paying them in that range? If you are in or below the low end of that range, you are probably not paying competitively. Now what?

Well, if you have a business that can only survive or be profitable by paying below market wages, what kind of business do you have? If you are a startup and this condition persists, yet you believe in the future prospects, you may need to raise investment.

Otherwise, you may be paying too much to provide your product or service or have extraneous overheads that are creating this lack of competitive headroom, cash flow wise. Goodness knows your reason for being competitive can’t be because you don’t pay competitively! There could be many root causes, and likely it’s a combination of factors, not just one – so what are you going to do about it?

Increasing the pay scales for your employees is usually not something you can fix overnight, but you can get started today.

Start by doing some evaluations, as I have mentioned previously, and create a list of target future wages per employee. Build those into your budget and see what the net impact is. Maybe it is not as bad as you thought. Certainly, a revolving door of staff has its own expense and can damage internal and external relationships and service levels.

Next, talk with you staff. This is only worth doing and fixing if you are open and honest. Start by making a small increase, show movement in the right direction and see how the business adjusts. Then, repeat.

This is how I did it: A little bit at time. It won’t satisfy everyone at once, but at least you’ll be doing the best you can with the resources you have and hopefully that will be motivating in and of itself.

Special to The Globe and Mail

Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and sold seven businesses.

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