How much should you pay an employee?

How much to pay a marketing manager, a plumber, a sales manager and a goldsmith. The same question came from four clients in four weeks. But the question of how much to pay an accountant is what tipped the scales in favour of this article.

Let’s use simple example that came up last month, a client who wanted to hire a marketing manager. We use the word manager loosely here, they are the entire marketing department and hence this is an important position within the company, or any company come to that matter.

Hence with an important hire, it is crucial to pay the right rate, but it does beg the question, how much should you pay for an employee?

In this case, the new hire came from a similar business, had been trained within the industry and had directly applicable skills and experience. So you would expect their salary to be accordingly high, but it wasn’t, by a factor of over 30%.

So whilst the client wanted someone ready to hit the ground running, the results they got were rather the opposite.

In this case, the client got what they paid for.

If you’re going to pay peanuts, then you’re going to get monkeys and this is exactly true in this case.

Disregarding the fact that they amount paid by the client was less than the average salary for the position in Eastern Europe, there are other reasons why you show never lowball your employees, or key suppliers for that matter.

And if you do pay people less than a market rate, then do not expect to obtain a Rolls Royce Sweeptail when you are not even paying for a Daewoo Matiz.

You’ll run into problems, and they could be big

Problem 1 – They won’t trust you

If you underpay staff or suppliers, then they will feel like you are taking advantage of them. And by taking advantage, then you are losing trust, which is a core motivator in any relationship.

Problem 2 – You’ll miss out on the skills of true talent

This has happened to us all. We all miss out on opportunities because the budget or crucially cashflow does not stretch as far as needed. But by missing out, the opportunity cost is bigger as you will lose valuable input into how to make your business more profitable.

Problem 3 – They’ll lack passion

We’re entrepreneurs are much as you and we are both driven by what we do, delivering value that yields a profit. But we have to be driven my passion over profit as profit can not always be there. Hence when the going gets tough, only passion will get you through. And you won’t find an employee or supplier who will be as passionate about your business as you if you’re paying them less than they are worth.

How much should you pay an employee?

This may actually surprise you, but just pay them what is fair. And that starts by asking them  why they think fair is. More often than not, it is a number that is below what you may expect and if you then uplift this then they will be more that happy.

If you can’t afford it, then offer them less, with an upside of more in the future. However be mindful that metrics should be agreed about what would trigger future uplifts.