For Every Pay System, Communication is a Key

Many small businesses unfortunately spend a lot of time and effort designing a pay system and then leave it to the paycheck alone to communicate their pay policies, philosophy and administration. You need to thoroughly brief managers and supervisors in particular on your company's pay system so they can effectively explain, administer and support your policies.

Managers and supervisors need to possess the following information about the pay system:

  • Your company's pay philosophy
  • How to conduct a performance appraisal, if your company has such a system
  • How to handle and refer employee pay complaints
  • Legal implications of all pay policies

What employees need to know

You need to advise employees of the company's pay policies and how these policies affect them individually. You also need to communicate and fully explain any changes in these pay policies promptly.

Employees need to possess the following information about the pay system:

  • How the performance-appraisal and incentive systems work
  • How they can raise their own income through performance and promotion
  • How to voice complaints or concerns

Staying up to date

You must keep your pay system competitive and up to date. The key steps in doing so are as follows:

  • Obtain and review competitive salary data at regular intervals.
  • Review — and adjust if necessary — salary ranges at least annually.
  • Review job descriptions regularly and make adjustments based on disparities between actual work performance and the formal description.
  • Evaluate the performance-appraisal system. One common problem is that too many employees get superior ratings.
  • Review the pay system in terms of your small business's financial condition to determine whether the system is in line with the company's financial health and is tax-effective and efficient.
  • Periodically measure and rate productivity and determine whether any links exist between productivity increases (or declines) and pay policies.