Determining what the standard pay for particular employees is important, as you want to make sure that you are not underpaying workers. On the other hand, you can also choose (providing you have the budget) to pay higher than the average salary as a way to attract talent.
In their book "The Big Book of HR," Barbara Mitchell and Cornelia Gamlem wrote that the first step in determining how to pay employees is to develop the salary structure for your entire organization. This involves analyzing, evaluating, and pricing your jobs. Once this structure is in place, pay systems can be developed. As Mithcell and Gamlem explained, these can be developed in a number of different ways. It's up to you to choose the option that works best for your nonprofit.
- Pay for performance or merit pay systems tie pay increases to an employee's performance. These are useful for organizations that want to distinguish and reward performance and discourage a culture of entitlement.
- Single-rate or flat-rate systems generally pay one rate to all incumbents in a job, regardless of performance or seniority. The rate of pay is usually set at at the market rate.
- A time-based system is based on longevity, and pay increases occur on a predetermined schedule. Seniority is the main factor for these pay increases.
- In a productivity-based system, pay is determined by the employee's output.
- A person-based system pays people based on their value, rather than on the marketplace value of the job they hold.