Competitive pay is the most recognizable part of a company's compensation and benefits package, and it's key

in gaining and maintaining an advantage in the marketplace. Some of the first tools used to gain that advantage
are market salary reports, which are used to determine the going market pay rate in similar companies and
industries.

When trying to keep up with market salary reports and the going market rates, small to medium-size
businesses are sometimes at a disadvantage. Why is that? For one thing, the uniqueness of job roles within
smaller companies can make it difficult to compare job responsibilities in the market and obtain suitable salary
comparison data. A company's degree of competitiveness and ability to pay what the market bears can be
another challenge.

But the going market rate must be considered in an effort to achieve and maintain external equity. If you're a
business owner concerned with retaining top talent, you must consider the compensation practices of other
companies in your industry as a tool for reducing both turnover and recruiting costs. Especially in a business
where employees believe they can receive better pay for performing the same work somewhere else, there's
little incentive to stay with an employer; therefore, you must be concerned with external equity.

Content Continues Below

Factors within a company must also be taken into consideration when you're addressing compensation issues.
Internal equity seeks to place the same value on jobs that are similar in nature, responsibility and
requirements. Jobs requiring greater skills or more responsibility are seen as more valuable than lower-skilled
jobs. But remember, how your employees view their compensation is just as important as the compensation
package itself. The potential exists for pay programs to be misunderstood or characterized as unfair, subjective
or downright unlawful. In some cases, there may be merit to those perceptions.

Overall, a good pay program should be SMART, meaning it should be

S = Strategically based. When designing a pay structure, you should look at your company's goals and take its
future business direction into account, while rewarding and recognizing employee performance.
 M = Market tough. You should also look at the market and monitor what the market is doing to regularly
attract and retain the best.

A = Analyzed thoroughly. You must analyze not only the market but also the jobs your employees are doing,
and the jobs your employees will be expected to do in the future to maintain that competitive edge.

R = Reward results. Reward results and recognize potential. Most employers want to give incentives to
encourage employees toward an expected end rather than fully paying out dividends based solely on potential.
Integrating rewards with recognition strategies allows you to encourage employees to exceed performance
expectations.

T = Transformative. You don't want a compensation plan that's totally out of line with what the business
environment looks like today--your plan should resemble the times. Therefore, your practices and reward
elements should constantly change with the times.

In building your compensation program, remember that you objective is to create a compensation program that
will:

 Attract and retain top talent;

 Motivate your employees to achieve and maintain high performance;

 Ensure competitive and consistent pay practices;

 Comply with applicable federal and state laws and regulations;

 Operate within the constraints of your budget and financial resources;

 Ensure administrative efficiency; and

 Allow you to offer competitive salaries relative to the labor market.

Smartly integrated compensation plans take into account what's necessary for your company to maintain its
competitive edge today and its sustained growth tomorrow. When compensation dollars are limited, including
a good balance of benefits, recognitions and rewards can create a more appealing offering--and help you attract
and retain top talent.

Mary Massad is the director of HR product development for Administaff, a leading personnel management
company that serves as a full-service human resources department for thousands of small and medium-sized
businesses throughout the United States. For additional HR information, visit HR PowerHouse, an HR
website powered by Administaff.

Creative compensation
 It's important to give a lot of consideration to your business's compensation structure because it
ultimately reflects how employees are valued.

Sarah L. Fogleman
Kansas State University.

When it comes to employee compensation, most managers are busy asking: "What do I have to
pay to…?" That is not an easy question to answer. A better question might be: "What do I want
my compensation package to say?"

Whether you realize it or not, it is already saying a lot. Child care and health benefits say that
you value family. Giving longevity bonuses for employees on the anniversaries of their
employment with you says that you value employees who stay with the business. Throwing a
party at the end of your business's busy season lets the employees and their families know that
you appreciate it when your people go the extra mile. No matter what compensation elements
you use, they all carry a message.

That message is important. Compensation packages can be linked to business structure,

employee recruitment, retention, motivation, performance, feedback and satisfaction.
Compensation is typically among the first things potential employees consider when looking for
employment. It is important, therefore, to give a lot of consideration to your business's
compensation structure. After all, for employees, compensation is the equivalent not to how they
are paid but, ultimately, to how they are valued.

What is a compensation package?

It's easy to think "dollars per hour" when thinking about compensation. Successful compensation
packages, however, are more like a total rewards system, containing non-monetary, direct and
indirect elements.

Non-Monetary Compensation can include any benefit an employee receives from an employer or
job that does not involve tangible value. This includes career and social rewards such as job
security, flexible hours and opportunity for growth, praise and recognition, task enjoyment and
friendships.

Direct compensation is an employee's base wage. It can be an annual salary, hourly wage or any
performance—based pay that an employee receives, such as profit-sharing bonuses.

Indirect Compensation is far more varied, including everything from legally required public
protection programs such as Social Security to health insurance, retirement programs, paid leave,
child care or housing.

Employers have a wide variety of compensation elements from which to choose. By combining
many of these compensation alternatives, progressive mangers can create compensation
packages that are as individual as the employees who receive them.
The general consensus of recent studies is that pay should be tied to performance to be effective.
However, with traditional farming operations, that is not easily done. Business performance can
be affected by many factors over which employees have no influence, specifically—weather.
Successful managers must search for things employees influence and base performance
objectives on these areas. Your operation may benefit from the following: tenure bonuses for
long-time employees, equipment repair incentives to encourage good equipment maintenance, or
bonuses for arriving to work on time.

The more production information data your business has, the easier this is to accomplish.
Measures such as feed conversion rates, somatic cell count or mortality can offer great sources
for performance incentives.

Direct Compensation Alternatives

 Basic Pay: Cash wage paid to the employee. Because paying a wage is a standard
practice, the competitive advantage can only come by paying a higher amount.
 Incentive Pay: A bonus paid when specified performance objectives are met. May
inspire employees to set and achieve a higher performance level and is an excellent
motivator to accomplish farm goals.
 Stock Options: A right to buy a piece of the business which may be given to an
employee to reward excellent service. An employee who owns a share of the business, or
just a few animals or acres, is far more likely to go the extra mile for the operation. For
example, very few people leave their own gates open.
 Bonuses: A gift given occasionally to reward exceptional performance or for special
occasions. Bonuses can show an employer appreciates his/her employees and ensures
that good performance or special events are rewarded. Some indirect compensation
elements are required by law: social security, unemployment and disability payments.
Other indirect elements are up to the employer and can offer excellent ways to provide
benefits to the employees and the employer as well. For example, a working mother may
take a lower-paying job with flexible hours which will allow her to be home when her
children get home from school. A recent graduate may be looking for stable work and
also an affordable place to live. Both of these individuals have different needs and,
therefore, would appreciate different compensation elements.

In a tight labor market, indirect compensation becomes increasingly important. Businesses that
cannot compete with high cash wages can offer very individualized alternatives that meet the
needs of the people you want to employ. Such creative compensation alternatives are the small
business's competitive advantage.

Indirect Compensation Alternatives

 flexible working schedules

 elder care
 retirement programs
 moving expenses
 insurance (health, dental, eye)
  subsidized housing
 paid leave (sick/holiday/personal days)
 subsidized utilities
 tickets to events (ball games, concerts)
 magazine subscriptions
 boots and clothing
 laundry service
 company parties
 use of farm trucks, machinery
 farm produce/foods/meals
 cellular phones/pagers
 child care
 use of farm pastures and gardens

Elements of a successful
rewards system

1. Non-monetary
Compensation.
Includes benefits
that do not involve
tangible value.
2. Direct
Compensation.
Employee's base
wage.
3. Indirect
Compensation.
Everything from
legally required
programs to health
insurance,
retirement, housing,
etc.

Determining the cash wage

Ask ten different people what a fair wage is and you'll get ten different answers. While there are
no hard and fast rules in determining a fair wage, the importance of the task is obvious. Research
according to Gregory Billikopf indicates that employees expect wages to 1) cover basic living
expenses, 2) keep up with inflation, 3) provide some funds for savings or recreation, and 4)
increase over time. Discussing wage expectations with employees can help determine what their
compensation package should look like.
The first thing employers should consider when developing compensation packages is fairness. It
is absolutely vital that businesses maintain internal and external equity. Internal equity refers to
fairness between employees in the same business while external equity refers to relative wage
fairness compared to wages with other farms or businesses. No matter the compensation level, if
either internal or external equity is violated, a business will most likely experience employee
dissatisfaction and employees with begin to balance their performance through a variety of ways
ranging from decreased productivity to absenteeism and eventually to leaving the business.

So, what constitutes a fair wage? One approach to determining a fair wage is a market survey.
These are typically fast and easy ways to establish compensation guidelines for many businesses.
A few phone calls to other employees in similar businesses can determine the "market" value for
a specific job. Unfortunately, this technique is not necessarily well suited for agricultural
producers. An agricultural manager can do informal surveys of other agricultural producers to
determine the "going rate" for labor or modify existing studies of non-agricultural businesses to
compare employees not by job title but by skill sets. For example, operating a forklift in a factory
and driving a tractor may require similar skills and, therefore, can be compensated similarly.

Broadbanding was used in a Cornell University study. Five competency levels were developed to
classify employees according to three criteria: authority to make decisions, skill level and
supervisory capacity. By using a competency scale, each employee can be cross-referenced by
job title and competency level or studied solely within either category. Employees of similar skill
levels or competency are taken together in compensation "bands" regardless of job title. These
bands then compensate like employees at like rates across the entire organization and serve to
maintain both internal and external equity.

Conclusions

Agricultural managers face many decisions every day. Finding the time to build and implement
an equitable wage structure can be difficult. To make the process easier, consider the following
checklist:

1. Decide what you want your compensation package to do.

o recruit new employees
o motivate current employees
o reward well-performing employees
o minimize risk of violating federal laws
o build employee loyalty
o any combination of the above

o Determine your internal wage structure; either:

 evaluate the jobs
 evaluate the employees
 create competency groupings

 Talk to your employees about their indirect compensation needs:

 health insurance
 paid vacation
 housing
 child care
 retirement planning

 Structure your total rewards system, including:

 indirect compensation based on your employee's needs and
your compensation objectives
 direct compensation based on labor market information
and your compensation objectives

 Implement your new system, remembering to:

 communicate with your employees about their
needs
 review your compensation package regularly—
make sure it is fair, equitable and competitive
 be flexible and innovative to maintain a competitive
advantage
 maintain both internal and external equity

Successful agricultural producers rely on common sense when it

comes to management decisions. Employee compensation should
be no different. If you want employees to be innovative—reward
them for new ideas. If you want employees to stay for a long time
instead of training new employees every season—offer bonuses or
tie their wages to their tenure. If you need employees that show up
on time, work hard, and can be trusted with the most challenging
of tasks—recruit those people; reward those people; promote those
people. The future of your business could depend on it.