HR Advice

How to determine your employees' salaries in 2023

June 26, 2023
06/26/2023
HR Advice

The job market has changed a lot in recent years... and so have salaries! Inflation and labor shortages have played an important role in wage growth. Between April 2022 and April 2023, the average hourly wage in Canada rose by approximately 5.2%.

If you find it difficult to keep up to date with compensation, here are a few tips for determining your employees' salaries in 2023.

In this article we will discuss :

  1. The evaluation of your positions and the salary strategies
  2. The criteria for determining salaries
  3. The internal pay equity
  4. An example of a salary scale
  5. The external pay equity and the salaries on the job market

Evaluate your existing positions: Tailor your salary strategies for each role

Before you start thinking about external or internal equity, it's important to accurately analyze your positions, as well as their value within the organization.

Different salary strategies can be adopted for different types of position within your company. Some positions are more vital to the well-being of your business, so it's important to offer good conditions and a good salary, if you want to avoid a high turnover rate in these types of positions.

Please note that the value of a position should not be based solely on whether it generates money directly or indirectly for the company. For example, customer service or technical support employees are not necessarily the ones who make your sales, but if the turnover rate is high in this department, the quality of your customer service will decrease.

So it's up to you, as a company, to establish your own criteria for assessing the value of your various positions.

Evaluating current employees to determine their salary

Once you've identified your key positions and developed a compensation strategy accordingly, the next step is to evaluate the people occupying those positions.

When evaluating an employee's compensation, several aspects should be taken into account.

Seniority: Someone who has been loyal to your company in recent years should be compensated accordingly. The number of years of experience outside your company should also be part of the calculation.

Performance: It's perfectly normal for your top performers to be paid more. It's up to you, however, to define how you evaluate performance within your company, since it can be assessed on more than just numbers. The important thing is to evaluate your employees fairly.

What if you're trying to determine the salary for a position you're recruiting for?

If you're in the process of recruiting, and you hire an Executive and Professional Search firm, they'll be able to analyze the profile you're looking for and give you strategic advice on compensation. Indeed, recruiters have their finger on the pulse of the market, as they talk to employees and employers in different industries on a weekly basis.

If you're recruiting in-house, you'll need to assess the skills required to perform the tasks of the vacant position, and the value of these skills on the market.

Skills required for the job: A specific level of education, bilingualism, knowledge of industry-specific software or concepts, etc., are all requirements that will influence salary.

Internal equity: Ensuring fair wages within your company

Salary isn't one of the main reasons an employee leaves their job... but an employee who feels unfairly paid is very likely to leave your company.

Read our article on Employee retention: 7 Most Common Reasons Why They Quit.

So it's important to establish fair salary scales within your company. A salary scale is generally a table which, for a given job class, shows different salary levels in ascending order. Usually, the lowest level corresponds to a lower level of experience and skills, while the highest level corresponds to a more senior level of experience and skills.

Although establishing salary scales may seem like a daunting task, it's a practical tool for ensuring internal equity.

Here's an example of a salary pay scale with different ranges (levels) based on education:

salary pay scale example

This example is simplified for ease of understanding, and comes from the AIHR website. You can find more details on how to set up a salary scale with different classifications here.

With salary scales in place, it will be easier for you to explain how you have established your different salaries. You'll also be able to justify salary differences with measurable criteria that apply to everyone.

But be careful! It's important to respect your salary scales at all times. Whether you're hiring a new person, or promoting internally. That's how you ensure internal equity.

External equity: how to accurately assess the salaries offered on the market

Labour shortages and inflation have caused salaries to rise rapidly. But whatever the socio-economic context, it's important to ensure that your salaries are in line with what's available on the market, to ensure external equity.

Indeed, if your employees perceive that their salary is not in line with the market, they will feel that they are not being paid what they deserve, and may leave your company.

Furthermore, if you don't increase your salaries periodically to keep up with inflation, catching up could cost you significantly. It's important to review your salary scales annually to avoid a hit to your company's finances.

Indeed, if you need to increase your payroll by 10% to make up for wage gaps, for example, you may have no choice but to drastically increase your prices for your customers.

To give you an indication of current salaries; between 2000 and 2022, the average hourly wage in Quebec rose by 24%. If your salary increases during this period do not reflect this increase, your company is falling behind.

Setting a competitive salary for your employees

With full employment in Canada, there is a war for talent on the job market. Companies need to be attractive and offer competitive advantages if they want to attract candidates.

Besides, if you're in an industry where there's a labor shortage, increasing your salaries by simply following inflation may not be enough. You need highly competitive salaries (i.e. higher than the market) if you want to attract and retain rare profiles.

If you want to compare your salary scales with market data, several companies such as Hays or Randstad publish Salary Guides every year. Avoid using sites such as Glassdoor and Payscale, however, as these can take longer to update their data, and are unreliable since they are sometimes based on a small data sample.

What if your company can't afford to offer attractive salaries?

Unfortunately, offering salaries that are too low in relation to the market can not only make your recruitment more difficult, but also increase your turnover rate. This has a cost, which may even be higher than the cost of a salary increase.

Evaluate your recruitment costs using our calculation grid.

If your payroll budget is really stretched to the limit, consider boosting your employees' global compensation in other ways. Whether it's indirect compensation (group insurance, vacation, expense reimbursement, etc.) or non-monetary benefits (working conditions, work-life balance, etc).

Would you like advice on compensation for your current or future employees? At Thorens Solutions, we have access to a number of salary studies and are able to make a fair assessment of your positions.

Contact us.