Setting Salaries as a Small Business: What to Pay
Paying too little means you cannot hire anyone good. Paying too much strains your budget. Here is how to set fair, competitive compensation for each role.
Why Compensation Is So Hard
Small business owners typically underestimate what competitive pay looks like until they try to hire and discover their number is 20% below market — or they overestimate and offer more than the business can sustain.
Getting compensation right means your money goes to the best people, and they actually stick around once you've hired them.
Start With Market Data
Don't guess. Use data. For each role you're hiring:
- ›Glassdoor, LinkedIn Salary, and Levels.fyi (for tech roles) show self-reported salaries by role, location, and experience level
- ›Bureau of Labor Statistics (BLS) Occupational Employment Statistics has detailed salary data by occupation and geography
- ›Indeed and ZipRecruiter often show salary ranges on job postings — search your role and location to see what competitors are actually offering
- ›Industry associations often publish compensation surveys for their specific sector
Get a range, not a single number — you want the 25th, 50th, and 75th percentile for your role in your market, not just an average.
Factors That Adjust the Market Rate
| How it moves the number | |
|---|---|
| Location | A marketing manager in San Francisco earns 40-60% more than one in Kansas City. If hiring remotely, decide deliberately whether you pay to the role's geographic market or your company's location. |
| Experience | Entry-level, mid-level, and senior roles within the same title can vary by 30-100%. |
| Industry | Tech and finance typically pay more than nonprofit and education for the same title — know your industry's norm, not just the role's. |
| Equity | Early-stage startups often pay 20-30% below market cash and compensate with equity. Be honest about this tradeoff with candidates, not vague about it. |
| Benefits | Strong benefits (health insurance, 401k match, generous PTO) let you pay slightly below market cash. Weak benefits require paying at or above market to compensate. |
A Simple Framework
Position yourself intentionally within the market range, not by accident:
Below market (25th–40th percentile): Only sustainable if you offer strong equity, unusually flexible working conditions, or a well-known brand or mission — this attracts people who genuinely value something other than cash.
At market (50th–65th percentile): The default target for most roles — competitive without overpaying.
Above market (75th+ percentile): Appropriate for critical roles where the cost of a bad hire or a long vacancy is very high, or when you're competing directly against companies with more brand recognition than you have.
Variable Pay and Bonuses
For sales and business development roles, a base salary plus commission structure is standard — a common model is 50% base, 50% at-risk, earned through quota attainment.
For non-sales roles, performance bonuses are typically 5–15% of base salary for hitting clearly defined targets.
Avoid vague bonus promises. "End-of-year bonus if the company does well" is demotivating and tends to breed resentment rather than motivation. Tie any bonus to specific, measurable outcomes the employee can actually see themselves influencing.
Pay Equity and Legal Risk
Equal pay laws apply to small businesses too
Federal law (the Equal Pay Act) and most state equal pay laws require equal pay for equal or substantially similar work, regardless of gender or other protected characteristics — and many states have gone further, restricting or banning employers from asking candidates about their salary history specifically because it was shown to perpetuate existing pay gaps forward. As you set salaries role by role, keep a written record of the market data and factors (from the table above) that justified each number — this is exactly the kind of documentation that protects you if a pay decision is ever questioned, and it also just makes you more consistent and fair by default.
Key Terms
Key Terms
- Percentile (compensation)
- Where a salary falls within the market range for a role — the 50th percentile is the market median, not an average of the highest and lowest offers.
- Salary history ban
- State/local laws prohibiting employers from asking candidates about their prior salary, intended to stop existing pay gaps from following someone from job to job.
Discussion & questions
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