When you're hiring a salesperson with close personal relationships to your five hottest prospects, feel free to pay way above market. I sure would. So once you know what the job is worth and what your candidates will expect, you've got to decide how you'll pay. Will you offer a fixed salary or hourly pay? Sometimes the choice is yours, but often, there's a common perception among employees that certain positions will pay one way or the other.
While salary-based jobs are typical for managers and white-collar positions, hourly pay is traditional for temps, some consultants and certain blue-collar jobs. Hourly pay is natural when the work is directly related to time. For instance, assembly line workers are paid hourly because their productivity is directly related to hours on the line.
Ditto for retail clerks. You might think a retail owner would be paying for great customer service. But that's only partially true. While treating customers nicely certainly makes a difference, a clerk who isn't at work can't deliver that great customer service, so they're stuck being paid for hours they're actually in the store.
How Much Am I Worth? – 5 Ways to Figure It Out
Next--and this all depends on what industry you're in--you may need to speak with your lawyer to make sure what and how you're planning to compensate a particular position is legal. For instance, some jobs have minimum wage or other legal restrictions, such as waitstaff positions that are paid a low minimum wage but are assumed by the IRS to be generating income through tips.
Unions may also have contracts that require particular wage levels or overtime pay. Salary-based jobs are another matter. Salaries are fixed, so no matter how much work an employee does, they'll get the same amount in their paycheck each week. The original idea was probably to pay for contribution that couldn't be easily measured in hours.
For example, an ad manager who creates advertising campaigns that bring in millions of revenue is paid a flat salary, since what she does is related to insight and results, not hours. As time has advanced, however, paying via a flat salary has taken an unexpected twist. Hourly workers are paid more for working overtime. But there's no penalty to you other than a moral one to overworking an exempt salaried employee, so you can hire someone on salary and then demand hour weeks at the salary of a traditional hour-per-week job.
Morale will tank, of course, and people will hate you, but if you can put up with that, it is an option. Another way to pay is via commission. Some jobs contribute to revenue directly. For those positions, you can pay a commission based directly on the revenue generated. Salespeople are one type of employee who are often paid on commission. The logic is simple: We know what a salesperson is worth--the dollar value of their sales. So we can motivate them to sell as much as possible by basing their income on their sales volume.
Most salespeople have a low, base salary and the upside potential of receiving a percentage of what they sell. Percentages vary, but I know one man who made a 5 percent commission selling a jet plane. Not bad work if you can get it. Beware the trap of confusing commission percentages with the dollars you pay your salespeople, however. If you believe your commission percentage is right, let your salespeople take home as much money as they can.
I've seen companies chase away phenomenal salespeople by getting greedy. Heck, if a salesperson is pulling in a cool million, let them! That means they're making tens of millions for your company. Don't cap their commissions and risk losing the salesperson who lays the golden eggs. Lastly, you may want your salaried folks to have direct revenue incentives as well. The salary-equivalent of a commission is the time-honored bonus, which is a favorite perk for jobs that don't directly bring in the bucks.
Bonuses are often tied to specific project results or to overall company performance: If the company does well, some part of profit gets held back and is distributed as a bonus. The idea is that bonuses motivate people to work for the good of the company or the good of the project. That system works great--as long as people think they can really have an effect on the company. In practice, people's work is only vaguely related to the bottom line, so bonuses get mixed results as motivators.
And if bonuses are steady, you also run the risk of people growing to expect them, so they become implied promises. Bonuses are handy, however, for rewarding people who do an exceptional job or as a way of providing a portion of compensation that can grow or shrink depending on the company's fortunes. Now that you know what you'll pay, what the market will expect and how you intend to tie pay to results, be prepared to get super-flexible if you're hiring executives and upper-level managers. That's because, when it comes to the upper echelons of business staff, guidelines get fuzzy.
Executives often get a mix of stock, salary and bonuses, set by a complex dance of greed, market rates and prevailing practice. Stock options claim to align executives and shareholders, but be careful! In a private company, this may work. But in public companies, options can encourage stock manipulation without long-term business results. How much stock should you offer?
That depends on how you value the stock and what you think it will be worth someday. There's not room to discuss it in detail here, but check out my site for a few ideas about dividing up equity. If you're hiring an expert, meaning someone with a special skill, reputation or network, you'll also have to bend the rules, and everything becomes negotiable. Their expectations will be based on their past experiences and their awareness of market rates. If you really want them working for you, you'll have to be flexible.
So craft a deal with short-term salary, long-term bonuses or stock, and performance-based targets as building blocks--you'll meet their needs yet leave them chomping at the bit in terms of motivation. Finally, realize that you have a lot of flexibility if you expand your thinking beyond mere money. Some people value things other than money yes, it's true! You may be able to offer nonfinancial rewards that hook people and draw them in. Flexible hours, casual dress, more time off, telecommuting, and impressive or creative titles can all be offered in lieu of cash.
Training and professional development also matter to people! So use the market rates, salary expectations, the intrinsic worth of the job, and your creativity when deciding what to pay. After all, having an on-site masseuse can count for a lot when you're working late! Co-founder or initial team member of nine startups over the past 25 years, Stever also brings his clients a strong background as a graduate of Harvard Business School and MIT. Entrepreneur Media, Inc. In order to understand how people use our site generally, and to create more valuable experiences for you, we may collect data about your use of this site both directly and through our partners.
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See Latest Articles. Second, you'll be able to back up your salary request with facts and evidence, and it will show that you've extensively prepared. Finally, you'll be able to walk in with much more confidence than if you just made up a figure on the drive over. Among other factors, be sure to research the average salary for your target position, the average salary at this specific company, and the average salary in your area.
Your value to the company goes far beyond the position you're applying for. A "senior marketing manager" with 10 years of experience, an entrepreneurial background, and proficiency in both graphic design and basic programming is going to be worth more than a "senior marketing manager" with five years of experience and not much else on the table.
All those peripheral skills you've been developing over time do have an objective value, so don't neglect to include them in your calculations. One critical mistake of amateur salary negotiators is to use their previous salary as a base.
They may request their old salary plus a small additional percentage, or just settle for what they're already used to making. Unless absolutely nothing has changed about you and you're working for the same company at the same position, this is counterproductive. Don't base any of your calculations on your old salary. Instead, look at your objective value to the company and the evidence you uncovered in your research.
In fact, don't even mention your old salary in the interview.
talk to our experts.
Negotiation is a numbers game, but be ready to negotiate for more than just a base salary. Many of these peripheral benefits are negotiable, and you can even get creative--for example, you could request extra vacation days or flexible work-from-home time. Think about what's really important to you in a job, beyond just money, and don't be afraid to negotiate for it. Don't be afraid to ask, and try to do so before your potential employer makes you an initial offer.
When you do so, you should have a salary range you're looking for, so ask on the high end of that range, with a little extra padding in anticipation of a back-and-forth negotiation. There's a chance your high offer will be accepted, which is great news for you, but temper your expectations by preparing for a rejection.