How to Determine Appropriate Pay for New Hires, Transfers, or Promotions

Compensation packages in your organization will constantly be changing. You’ll experience new hires, transfers, and promotions. Determining appropriate pay will depend on multiple factors, including the position’s role in your company, market rates, and the company’s financial situation.

• New hires – when welcoming someone new to your company to fill a vacant position, you’ll need to offer a competitive salary compared to the market value within company budgets.
• Transfers – when an employee leaves a position in their current department for a new one, determine the salary depending on the type of transfer – lateral (no change), promotion (increase), or demotion (decrease).
• Promotions – when an employee moves up to a position in a higher pay grade or with more responsibilities in the same grade, there should be a salary revision considering experience, skills, internal equity, and market competition.

Benefits of Establishing a Pay Structure

Pay structures are your company’s pay grades and levels organized in a hierarchy. This framework helps you strategize compensation policies and rewards. It means you can manage your employee pay rises and career development with clarity. It also helps achieve pay equity and avoid legal discrimination issues. Over 72% of companies have set pay structures in North America.

Having a pay structure is especially helpful when it comes to new hires, transfers, and promotions. You can avoid potential misunderstandings or feelings of unfairness when you have a set pay structure that everyone follows. Furthermore, you’ll make your manager’s job easier when evaluating employees and making offers to new hires.

Determining Appropriate Pay for New Hires

Determining appropriate pay for a new hire can be tricky. You must offer a fair salary for what the job entails and your candidate’s experience or skills. You should also take the market rate into consideration so that you don’t fall behind your competition and lose your candidates to them. Another consideration is the going rate for others in your organization in similar roles and with long tenure.

By doing a job market analysis, you can compare the salaries of people in similar positions across a range of companies. It’s a good idea to do the research based on the position’s job description, rather than the title. You want to match the responsibilities and requirements of the job when making these comparisons. You’ll get insight into median salary ranges and ensure you’re not over or underpaying your new hire.

Remember to consider the additional costs associated with hiring a new employee, such as training and benefits packages. All of this should be factored into your budgeting when making an offer. These costs should be calculated ahead of time to avoid inflating the cost of hiring.

Compensation Decisions for Transfers

Transfers include when employees move laterally, have a promotion, or are demoted.

Lateral transfers are assigned to another department within the organization but usually stay within their pay grade. This is something to consider when you have an employee who desires to develop their skills and opportunities but you can’t afford to raise their pay. It’s also a way to improve satisfaction when someone is unhappy in their position.

Demotions involve reassigning an employee to a role with fewer responsibilities or status. This typically means their pay will decrease. This could be a mutual decision if an employee chooses to reduce their workload, but it could also be the consequence of poor performance, necessary disciplining, or elimination of a position. Having an established pay structure will help you decide the employee’s new pay grade depending on the role.

We’ll discuss promotions in the next section.

How to Evaluate Performance and Pay for Promotions

Deciding whether your employee is given a promotion depends on performance, worth, and your financial situation. Consider their work ethic, temperament, and skill set. What do they bring to your team? Do they go above and beyond? Have they shown consistent dedication? Hard work should be rewarded, and promotions are vital for your organization’s retention rates.

If you’re not offering career development opportunities, your employees will be less likely to stick around. Consider what your organization can offer. If it isn’t within your budget to offer pay raises and financial promotions, consider opportunities to gain skills and experience (such as a lateral transfer). Discuss this with your hard-working employees and listen to their aspirations in their career development.

Ultimately, promotions are your way of saying thanks to your employees. It shows that you notice their efforts and commitment and that you value it. Having transparent conversations about promotional opportunities, be they monetary or experience, will demonstrate respect and encourage productivity.

Be Compliant and Transparent in Your Compensation Practices

Always remember to be compliant and transparent when determining the appropriate pay for new hires, transfers, and promotions. Labor laws are only becoming stricter when it comes to discrimination and pay equity. If you don’t take compensation policies seriously, you can quickly run into issues that could cost your organization time and money.

Employees are also expecting to know more about the compensation decisions being made. They want to know how their salaries were determined and how future pay decisions will be made. Be clear about pay policies and structures, including what your team can expect regarding bonuses, pay raises, and promotions.

Whether you’re hiring a new team member, doing an internal transfer, or promoting someone, you’ll need to determine the appropriate pay. A set policy and transparency will help to build trust and encourage employees to stay loyal to your organization.