How to Create a Competitive Wage Scale

A competitive wage scale can allow you to compete with other companies in your industry while also enabling you to attract and retain top talent. Your overall company pay scale, and the scale for each position, should take into account the education, skills, training and experience of your employees, as well as your profit margin. Salary scales may be determined by committee and approved by the board of directors, or the chief executive officer may set the pay scale herself. The exact method used may depend on the type of business you are in and on the culture of your company.

  1. 1.

    Define each position in your company for which you want to set a competitive pay scale. List the tasks each position will accomplish, the skills and education needed, and the core competencies for the position. Provide definitions of acceptable performance for each position.

  2. 2.

    Research wage scales in other companies in your industry and in your geographical area. Hire human resources personnel or consultants who specialize in your industry to do this for you.

  3. 3.

    Forecast your growth and the size of your workforce for the next few years. Determine the amount of capital you have on hand to assess whether you can afford to offer higher salaries or need to keep salaries lower.

  4. 4.

    Set your wage scale based on how competitive you want to be. Your overall competitiveness will depend on elements such as employee pay, expected growth, ability to attract and retain employees and the industry forecast. If you need highly qualified employees to be competitive, set your pay scales higher to attract top talent. If you need to save money to be competitive, offer lower pay ranges.

  5. 5.

    List the types of nonsalary compensation that you will make available for each position. This can include elements such as health insurance, bonuses or stock options. The overall competitiveness of your salary scale depends on the total package you offer, not just the rate of pay. For example, some employees may be happy to accept a lower salary if they also receive stock options or extra vacation.

  6. 6.

    Write a compensation mission statement for your company. This could include how your company will use its pay scale to remain competitive. Use the industry information you have gathered to set a target pay rate for each position. Set the mid-range of the pay scale as the amount paid to qualified employees with average performance.

  7. 7.

    Chose a method for giving pay raises, for example, based on time on the job or factors such as whether employees obtain the core competencies needed for their jobs. You can also assign pay raises based on performance or on whether employees acquire certain skills.

  8. 8.

    Communicate your pay scale to your employees who handle hiring so that candidates understand the scale and any other types of compensation they will receive, such as health insurance, bonuses or stock options.