Q: Given that I have no formal business training, the simple questions in running the show always get me. Is there a ceiling for salaries for managers (adapting for inflation, of course), or do they just grow infinitely with our growth?
A: Congratulations on your business success. Since you are the one running the show, the good news is that you determine the answer to this question, and the bad news is that you are also the one responsible for the consequences of this decision.
While no official pay ceiling exists in the private sector, you will benefit in the long run by being clear on the salary ranges for specific jobs. If you have fewer than 10 employees, a formal compensation structure may be overly cumbersome. However, it would position you for the future if you expect to grow exponentially. Some related points to consider in terms of salary are issues of individual motivation, total rewards, fairness, consistency and opportunities for further advancement within the organization.
Employees appreciate knowing what the salary cap is for their present job, if there is one, because they can then decide whether they want to move up in the company and begin to develop the necessary skills and responsibilities to advance. This assumes, of course, that higher-level positions are available, valued and rewarded at a higher salary.
However, if you have a very small team and you have a manager who is critical to your organization, you want to retain that person’s talent and loyalty. Consider tying pay increases to performance criteria or even a bonus system. To continually motivate and maintain high performance and morale, salary increases are usually helpful, although not the only variable.
By: Erica Diehn, assistant professor of management at the University of St. Thomas Opus College of Business.
This article originally appeared in the Star Tribune on September 3, 2015. Used by kind permission of the Star Tribune.