By Nancy E. Day
      
      Like all employers, small businesses face a critical challenge in attracting and retaining talented workers. While small businesses offer attractive career opportunities, these companies also must overcome significant obstacles in attraction and retention. A well-designed total rewards program can address these obstacles.

      A “total rewards” perspective expands the reward horizon from pay and benefits to other aspects of work employees find motivating or engaging. Although pay is certainly the critical component, new job candidates (and long-time employees who are considering external job offers) look at other things.

      Small employers should ask themselves: “What do we want to pay for?” Put another way: What are the worker behaviors the organization wants to encourage? Understanding this provides managers with the foundation to develop a successful pay program. If top performance in a competitive environment is the answer, then seniority-based pay or cost-of-living allowances are not good strategies, since they do not reward performance.
     
Structuring Pay

      In structuring pay, consider three important principles: internal equity, external equity and individual equity. Internal equity refers to paying jobs fairly in relationship to other jobs in the organization. Jobs that are more complex and require more skill, experience or education should be assigned more pay.

     It’s important to note here that we are discussing jobs, not people. This starts with some type of job analysis: systematically analyzing the work so its content can be precisely defined.

      The second piece of the pay puzzle is external equity, which means paying jobs competitively in the market. Again, we are talking about jobs, not people. Starting with an understanding of job content, collect pay data about similar jobs from market surveys. Many of these can be found on the Internet (although as in all market survey sources, consider the validity of the data and the source). Salary.com has built a good reputation for having valid and reliable data at a reasonable cost. Professional associations frequently conduct salary surveys that can be accessed for nominal fees.

      Some small businesses may not have grown to the point of having clearly defined jobs. Many small employers instead hire a person for multiple roles. If this is the case, determining pay is more difficult, and is usually done by relying on external equity judgments. Market data for such roles are often elusive, and then a best guess is the only answer.

      Finally, individual equity means rewarding individuals for their unique and ongoing contributions to the organization. Many organizations use merit-based pay, in which performance appraisals are linked to annual pay increases. Merit pay provides a method for base pay to increase while emphasizing that the organization values performance. Merit pay requires that a sound performance-management system be designed and implemented.
     
Consider Bonuses

      Bonuses are common and generally effective. They are most successful when given as soon as possible after the behavior (e.g., immediately after annual business results are calculated is the time that profit-based bonuses should be awarded), are objectively determined based on predetermined criteria and reliable measures and are large enough to reinforce behavior.

      Bonuses may or may not be essential tools in an organization’s pay program. Careful design and implementation are critical, or bonuses may cause more harm than good. “Line of sight” is crucial. Are employees really able to affect the outcomes upon which their bonuses are based? If not, then bonuses will be ineffective and a waste of money. Also, not surprisingly, employees will do what they need to do to get a bonus, and extremely careful design is necessary so that the correct behaviors are rewarded. A notorious example is a large food producer that awarded bonuses to vegetable cleaners based on the number of insect parts they found; employees started bringing bug parts in to increase their bonuses.
     
Non-financial Rewards

      Because of near astronomical costs, many small businesses are unable to offer health insurance. However, a number of potential employees report they would not consider a job without health benefits. This puts small employers unable to offer health insurance at a significant recruitment and retention disadvantage. A strategy to offset this disadvantage is emphasizing the other, non-financial benefits that small businesses can offer.

      Wise managers will evaluate and maximize the non-financial reward opportunities that the organization offers. Surveys show that employees rate development opportunities, flexibility and good management nearly as highly as pay.

      Today, most workers will not consider jobs in which they cannot develop their skills. Most small businesses offer tremendous development opportunities for their workers. Further, small businesses often are better able to provide job flexibility than larger organizations. Providing telecommuting, flexible hours or four-day workweeks may make up for the higher pay and benefits that larger employers offer. Another work environment reward—frequently cited as second in importance only to pay—is good relationships with supervisors. Small businesses owners who want to attract, motivate and retain top talent should ensure that their supervisors and managers have excellent managerial skills.
     
Nancy E. Day is an associate professor of human resources and organizational behavior at the Henry W. Bloch School of Business & Public Administration at the University of Missouri – Kansas City. You can reach her at (816) 235-2333 or .