I was talking to a small business owner today who asked me an interesting, yet difficult question. He wanted to know what do you do if you realized after the fact that you are paying an employee more than what the "going rate" is for their position. Part of his dilemma was that he could not afford to give this employee raises as their pay was too high already. What is the best way to handle this situation? First of all I suggest that he evaluate this employee and see if they are performing up to the expectations of the job and if not, this needs to be addressed first. But also he needed to address with this employee the fact that she was hired in at a higher pay level than the position pays according to the pay-scale standards of the local community. He also needed to let her know that he could not afford to give any raises and why.
This situation is not as uncommon as one might think, especially in a small business where a single owner needs to hire an assistant for the business and the most promising candidate is requesting an hourly wage that is high, but the business owner doesn’t really know that and needs someone right away. Years ago in our office we hired someone at a much higher hourly wage than expected, but the person we hired had experience and proved to be an excellent asset to our business. We did talk to her about an hourly cap that needed to be kept and we end up working things out by flex hours and other benefits to off-set future raises. This is exactly what I told this business owner to do when he sat down with his employee, find out what could he give to off-set a higher hourly wage? Many employee would prefer to have extra time off, work clothes paid for, gas expense, etc., in lieu of a raise.
The most important thing that needed to happen in this case was to have some open communication between the business owner and the employee. I explained that if this employee has been there for a long time without a raise and no discussion of it, she is probably wondering what is going on and it could effect the quality of work, thinking she is due something and has not received it. Also by letting this employee know that their pay level cannot go up and why, then they have the right to decided if they want to look for a job that might pay more, which is the fair thing to do.
Below is a great article with more information about overpaying employees
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