Why You Need to Pay Your Employees More

pay_moreFor many small business owners, the title of this post may seem counter intuitive.  You think that in a capitalistic economy, shouldn’t you try to get the best employee for the least pay?  The simple answer is really no. This does not work in the long run and it becomes a fool’s errand. Here is why:

 

  1. There are no deals. If you think you are getting an experienced person at a reduced price, there is a reason that that candidate is not working at their market rate. This does not mean that early in a person’s career you can’t find a gem, but later to retain that person, the company will have to pay market rate. If a small business can’t afford a person at their full rate, see if they can be hired part time.
  2. Churn is expensive. One of the most expensive things for a company is to constantly be replacing their staff. The cost can be as high as 25% of their compensation. Any churn rate higher than 33% can be disastrous for a business. One of the reasons people leave is because they can make more money somewhere else. Make sure that does not happen.
  3. Golden handcuffs are effective. When I worked at a computer consulting firm in the early 1990s, they always paid 15- 20% more than their competitors. Although it was a stressful place to be, people stayed and worked hard because it was tough to leave that kind of money. The extra pay kept them there.
  4. Great people cost money to get results. This is a fact of business. If a company wants to get great results from people, they will need to pay them well. While paying more does not always mean you get great people, it’s a good general rule to follow.

This may sound silly, but the difference to the company to pay people very well is inconsequential to a growing business. If there is a payroll of $1M in a $3M company, to pay well at $1.2M really will not make a difference if the business gets great results.

By | July 31st, 2017|Business|Comments Off on Why You Need to Pay Your Employees More

About the Author:

Barry Moltz gets business owners unstuck by unlocking their long forgotten potential. With decades of entrepreneurial experience in his own business ventures, he has discovered the formula to get stuck business owners and increasing their sales. Barry has founded and run small businesses with a great deal of success and failure for more than 20 years. After successfully selling his last operating business, Barry founded an angel investor group, an angel fund, and is a former advisory member of the board of the Angel Capital Education Foundation. His first book, “You Need to Be A Little Crazy: The Truth about Starting and Growing Your Business” describes the ups and downs and emotional trials of running a business. His second book, “Bounce! Failure, Resiliency and the Confidence to Achieve Your Next Great Success”, shows what it takes to come back and develop true business confidence. His third book, “BAM! Delivering Customer Service in a Self-Service World” shows how customer service is the new marketing. His fourth book, “Small Town Rules: How Small Business and Big Brands can Profit in a Connected Economy” shows how when every customer can talk to every other customer, it’s like living in a small town: Your reputation is everything! His fifth book, “How to Get Unstuck: 25 Ways to Get Your Business Growing Again” helps every small business owners move their company to the next level. Barry is a nationally recognized speaker on small business who has given hundreds of presentations to audiences ranging in size from 20 to 20,000. As a member of the Entrepreneurship Hall of Fame, he has appeared on many TV and radio programs such as CNBC’s The Big Idea, and MSNBC’s Your Business. He hosts his own radio show on AM560, and writes for American Express and Forbes.