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Establishing a competitive entry level pay philosophy

Veronica C. | February 23, 2011

I often have potential Experience customers ask me how they can stay competitive in the market when hiring entry level employees.  There is no simple answer to this question but I’ve dug into my HR compensation background to provide you with some basic info.

According to Salary.com (my former employer) a pay philosophy is a company’s commitment to how it values its employees.  The goal of a pay philosophy is to attract, retain, and motivate employees.  To do this, most companies use a blend of the three primary components of compensation: base pay, incentive pay and benefits.

You might know by now that Gen-Y employees are more concerned with the work-life balance, job satisfaction and benefits than pay.  So when you’re thinking about developing a pay philosophy for entry level employees you’ll want to keep that in mind.

Very few companies can afford to attract, motivate, and retain employees simply through high compensation plans that pay well above the 50th percentile of the market. The challenge is to create a pay program that attracts and retains Gen-Y employees by blending all three pay philosophy goals without draining your resources.

For example, a small company with reasonable cash flow is establishing a pay philosophy for entry level hires.

The philosophy might look like this:

  • Pay a competitive base salary – not an aggressive one that would pay above market, but maybe just below at 40th-45th percentile. Similar to a salary that an employee could get somewhere else.
  • Offer shares in the company to all employees so that they have a stake in the company. Make them feel like their working towards something bigger than themselves or a pay check.
  • Make up for the lower base salary in total overall compensation through the use of the incentives, perquisites (perks) and benefits. If, for example, an employee is paid below market in base pay, deliver market equality through an incentive program or a better benefits package offering 3 weeks vacation rather than the competitions 2 weeks.

So remember, when you’re thinking about developing a pay philosophy for entry level employee’s focus on work-life balance, job satisfaction, benefits and pay.  Blend all three pay philosophy goals to attract and retain the Innovation Generation.

I hope this has given you a jumping off point for your exploration of pay philosophies.  There’s plenty of great info out there on the web regarding pay philosophy, so go explore.  I recommend that you visit Salary.com and/or SHRM to learn more.

Cheers,

Steve

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Category: Employers

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