Why Competitive Employee Compensation Pays for Itself

Small firms can't afford to outbid large corporations, but there's a limit to how low you can go

Written by Alexandra Bosanac

As an employer, you need to be realistic about what you can offer your employees. It’s impossible to offer salaries on par with a large corporation, and small businesses often try to make up for that with more flexibility and an attractive workplace culture.

But there’s perks and a fun office environment only go so far. When it comes down to it, employees are working at least in part to get paid. Set salaries too low or rely too much on contract workers, and you risk shortchanging yourself and slowing your company’s growth.

Maureen Lucas left an 11-year career in human resources to start her own staffing company, Windsor-based LucasWorks. “I’m a small business—I can’t pay the same amount of money that some of my multinational competitors pay, because they’re huge companies,” says Lucas. “You kind of look at yourself as a different entity.” But about three years ago, something happened that forced Lucas, who took the #27 spot on the 2015 PROFIT/Chatelaine W100 Ranking of Canada’s Top Female Entrepreneurs, to rethink her compensation structure.

The recruitment industry is cyclical. In 2013, Lucas had 15 permanent staff members and would rely on freelance recruiters whenever business picked up. Her clients were experiencing growth themselves, creating extra demand for LucasWork’s services. “We had six recruiters and our business volume doubled in one year,” recalls Lucas. “Our smaller customers grew and because we were successful with some of those ramp-ups, other businesses started contacting us.”

Fall is the season when many of LucasWorks’ clients—largely in the manufacturing and automotive industry—begin actively recruiting. So Lucas brought on four temporary staff in the summer of 2013 to accommodate the influx of demand. “And three of them left directly before we got into our busy season,” recalls Lucas. “They left for higher salaries, positions that offered more money.”

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The turnover was a blow to Lucas. “We had invested two months of training into these people at our lower rate of compensation and they left us before we could even utilize the skills that we hired them for,” she says. And it was having an impact on LucasWorks’ relationship with clients. “Customers were losing consistency in personnel—they didn’t like that,” Lucas says.

Something had to change. “We cannot keep doing this, [using] short-term fixes at lower rates of pay,” Lucas recalls thinking. She conducted exit interviews with her departing employees, which helped her identify what about their new jobs were causing people to leave LucasWorks.

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“Fifty percent of them said it was really was about salary, benefits, and flexible opportunities,” recalls Lucas. She realized her salaries needed to go up, and that she needed a compensation structure with proper ranges. Previously, all new LucasWorks employees received the same starting salary: $28,000. The new salary ranges began at $35,000 and increases based on work experience and education. Lucas also offers her staff more flexibility around their work hours and benefits plan. The reformed structure took about six months to implement, she says.

The new compensation plan helped LucasWorks increase permanent staff by 20%, and improved retention among millennial employees. Lucas credits that to a corporate social responsibility initiative where employees are given up to four hours a month to dedicate to volunteer work. The program has helped younger employees build a name for themselves and has raised LucasWorks’ profile in the community.

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Keeping a larger roster of well-paid employees can create some financial challenges for companies, especially when they’re first starting out. But Lucas says employers need to play the long game. “In my situation, choosing to pay my employees a little more doesn’t put me in the negative. It just means a little bit less on the bottom line,” she explains. “In my first few years in business, it would have been scary.

“But truthfully, a higher-paid, more experienced person is going to be able to produce more for you. So truly you shouldn’t end up in the negative—if you do a smart hire.”


Are small businesses shortchanging themselves with low employee salaries? How do you reduce employee turnover? Share your thoughts and strategies by commenting below.

Originally appeared on PROFITguide.com