Small employers have been steadily hiking wages since the recession ended, and compensation levels are now back to near 2008 levels. In April, the National Federation of Independent Business said that just 2 percent of its members reported reducing workers' salaries, while 23 percent reported raising compensation. Although down from March's level, the net reading was still among the best since 2008.
Rising employee pay eventually means that small-business owners will have to pay more or risk losing talent to better-paying rivals. But we’re not there yet, according to most observers. For instance, at Next Level Funding in New York City, managers have held the line on base pay increases for salespeople, says director of sales Michael Hollander.
“We've slightly restructured how we compensate our sales representatives,” Hollander says. “We’ve increased the amount of money they earn on the first deal. However, we’ve limited the amount of money they earn on renewals or the second time their client receives financing.”
Although the company isn't increasing base pay, it still hopes its salespeople earn more money from the commission structure modifications it's made, which reward salespeople more for finding new clients than for reselling to existing ones. "Essentially we’re looking to keep them focused on generating new business," Hollander says, "without affecting their end-of-year income.”
That sort of "backing and filling" is typical of small-business pay practices in recent months, according to Rob Basso, president of Advantage Payroll Services in Freeport, New York, and author of The Everyday Entrepreneur. In a recent survey of his company's customers, who average about 15 employees each, 60 percent said they gave out raises in 2013, Basso notes. But the raises were minimal, averaging just 1 or 2 percent. “That’s basically just edging out inflation,” Basso says.
Survey respondents also indicated they were keeping pay scales level because they were coping with rising costs for benefits, especially health care, Basso says. At his own 50-person company, for instance, health-care costs increased nearly 20 percent last year, Basso notes. "Those kind of health-care cost increases make it difficult to increase employees’ cash compensation," he says.
Some of the increase in health-care costs is being blamed on the effects of the Affordable Care Act, although similar or slightly smaller annual health insurance premium increases haven't been unusual in recent years. Some is also due to employers making up for a lack of higher wages and salaries by improving their compensation in other ways, such as by providing better health coverage, Basso says. “They might not be getting an increase in pay," he explains, "but they might be getting a better benefit.”
Unfortunately, one problem with that strategy is that employees may not appreciate their employers’ efforts. While workers can easily tell when their paychecks are fatter, they often fail to appreciate it when employers are spending more on health care, Basso says. That's because they don't see an increase in benefits directly affecting their paychecks.
Basso suggests employers deal with this by making it clear to workers exactly how their benefits are improving—and that they're also costing more. Until a few years ago, most employers, including Basso, kept what they paid for employee benefits confidential. Now, Basso says, “Good companies are being transparent.” It helps employees understand exactly how they're benefiting—and how much money the company is spending to take care of their workers.
“We let everybody know what the total cost of health care is and what portion we’re paying on their behalf," Basso says. "I don’t know that I get more buy-in, but I’m being more transparent and giving them the tools to understand.”
What employers are really after, of course, is better employee retention and recruitment. So far, it appears they anticipate being able to do that without having to pay employees significantly more.
At Next Level Funding, Hollander says the company's planning to hire more salespeople before too long, but it hopes to keep compensation level. Rather, it expects that the company's benefits package, which includes health and dental insurance as well as a 401(k) plan, will help separate it from other competitive employers.
“As a perk and a thank you, we also buy lunch every Friday for our office,” Hollander says. Those kinds of perks, which he says are unusual in his industry, have helped the company recruit and retain the talent it needs, he says.
At Advantage Payroll Services, neither Basso nor other employers in his niche are offering higher pay to snag talent. “You don’t see people fighting over individuals,” he says. “I have two huge companies as competitors, and they haven’t been pilfering my employees and I haven’t been pilfering theirs. I think we’re all in the same boat.”
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