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The impact of competitiveness between contractors because of the difference in pay scale can be significant. Some contractors pay rock bottom salaries and others pay above union scale. Pay top dollar and get highly skilled, motivated, educated and trained employees. The result will be an increase in labor productivity.

If you pay a low salary, your better employees will leave to do the same work somewhere else or go to work on their own. Only the poorer, less motivated and less able employees will remain to work for you for lower pay. In addition, you may expect code violations, increased supervision requirements, and an increase in lower productivity.

To expand your work force, make an effort to hire quality people, pay them accordingly, and provide them with proper training. Make it possible for them to learn their trade or enhance their skills so that they can first increase their productivity, and then qualify for advancement. Many of today's successful contractors have an apprenticeship and continuing training program for their employees.

Overpaying, however, has a drawback also. You can be less competitive in the price you charge for the product or the service that you are offering. In business, every dollar spent must produce a positive return and that includes dollars invested in wages and salaries.

Compensation consists of more than salary (dollars):

  • Working Environment. Providing a clean, safe and professional working environment encourages employees to act with higher proficiency and professionalism. It also serves to instill pride in their accomplishments and makes them happy to come to work.

  • Terms of Employment. Some employees may request and have a legitimate need for different working hours per day, per week, etc. Some may choose to work as an independent subcontractor. Weigh your needs against those of your employees and determine if the work you need can be completed on these terms. By providing favorable terms of employment, you are instilling pride and purpose to your employees. Exercise care to treat everyone equally. Should you grant a new hire a benefit you denied existing employees, you may have created problems for not only the new hire (resentment by others) but yourself as well with existing employees who may have been denied the same benefit in the past.

  • Status. Added responsibility and accountability, as well as a title, often serve to provide immeasurable pride to an employee who is qualified and earns the status.

  • Fringe Benefits. These could include insurance coverage for the employee and family, company car or vehicle, uniforms, profit sharing, stock if applicable, increased vacation days, association membership, and training classes, to name but a few. Dollars invested in an employee break-room don't have to be matched with payment of social security and unemployment taxes. Some benefits are taxable, while others are not. Some benefit only one employee, others several employees. Be creative!

  • Benefits. These include insurance for the employee, paid holidays, and scheduled vacations. The daily newspaper, professional association dues, company paid defensive driving, and health club memberships offer a menu for employees to choose from. Again, be creative!

NOTE: For other closely related topics, be sure to review the sections on Company Policy (#78), and Hiring and Firing (#81) in this series of articles on Labor Management.

Mike Holt's Comment: This newsletter was extracted from my Business Management and Management Skills' Workbook. Watch for our next newsletter, and as always, we encourage your comments and feedback. Send us your real-life experiences. Please respond to

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