A Practical Remuneration Framework for Small Business in Australia

A remuneration framework can sound far more complicated than it needs to be.

Small-business owners often assume that remuneration frameworks are designed for large organisations with specialist HR teams, formal job evaluation systems and expensive market surveys. In reality, a small business can benefit from a much simpler version.

The purpose is not to create bureaucracy.

It is to help the business make better decisions about salaries, pay increases, promotions, bonuses and new-hire offers without starting from scratch every time.

A practical remuneration framework should help answer questions such as:

What should we pay for this job?

How do we know whether someone is underpaid or already well positioned?

How should we decide salary increases?

What should happen when someone is promoted?

How do we avoid two people doing similar work being paid very differently?

How do we stay competitive without constantly reacting to every salary request?

For a small business, those are the questions that matter.

Why small businesses need a remuneration framework

Salary decisions in small businesses are often made one person at a time.

An employee asks for an increase and the owner agrees to $8,000.

A new employee negotiates a higher salary because the business urgently needs them.

Another employee receives a counteroffer after resigning.

A manager wants to promote someone and recommends a 15% increase.

None of these decisions necessarily looks unreasonable on its own.

The problem usually becomes visible several years later.

You might discover that one employee earns $105,000 while another person doing substantially the same work earns $88,000.

A recently recruited employee may be earning more than someone who has been performing the same role successfully for five years.

An employee with the title "Manager" may not actually manage anyone, while another employee called a "Coordinator" is running an entire function.

Once this happens, every salary decision becomes harder because there is no common reference point.

A simple remuneration framework creates that reference point.

Start with a spreadsheet, not a policy

There is no need to begin by writing a lengthy remuneration policy.

Start with the employees you already have.

Create a spreadsheet showing:

This simple exercise is often surprisingly revealing.

You may notice salary differences you had never considered.

You may also discover inconsistent titles, employees sitting in the wrong reporting lines or remuneration arrangements that no longer reflect what people actually do.

The first stage of a remuneration framework is therefore not benchmarking salaries.

It is understanding the workforce you already have.

Look at the job, not just the title

Job titles in small businesses are often unreliable.

Someone may have been given the title "Director" because it helped with customers.

Another employee may have become a "Senior Manager" as part of a retention conversation.

A long-serving employee may still have the title "Administrator" even though they are now responsible for a large part of the business.

Before deciding what a job should be paid, understand what the job actually involves.

For each role, look at practical factors such as:

What does the employee actually do?

Who do they report to?

Do they manage people?

How much independent decision-making do they have?

How complex is the work?

How much responsibility do they carry?

What would happen to the business if the role disappeared tomorrow?

You do not need a formal job evaluation methodology to answer these questions.

You need enough understanding to distinguish between jobs that genuinely operate at different levels.

Create a small number of levels

One of the easiest ways to bring structure into remuneration is to group jobs into a small number of levels.

A business with 30 or 50 employees does not need 15 salary grades.

Five or six levels will often be enough.

For example:

The titles do not need to be perfect.

The important thing is that jobs with broadly similar responsibility sit in the same part of the structure.

This immediately gives the business a way to compare jobs across different functions.

A Finance Manager and Operations Manager may perform completely different work, but they may still be similar in organisational size and therefore sit at the same level.

Do not force everyone into management

A useful remuneration framework should also allow experienced specialists to progress without becoming people managers.

This matters particularly in technology, engineering, professional services and other specialist areas.

An employee might progress from:

Junior Developer

Developer

Senior Developer

Lead Developer

without becoming responsible for managing a large team.

This is important because many small businesses unintentionally create a situation where the only way to earn more is to become a manager.

That can result in excellent technical employees being promoted into management roles they do not want and may not be suited to.

The remuneration framework should recognise increasing expertise as well as increasing management responsibility.

Benchmark the jobs against the market

Once the jobs and levels make sense, the business can look at external market remuneration.

There is rarely one perfect source.

Depending on the business, useful information may come from reputable salary surveys, recruitment firms, advertised salary ranges, recent hiring experience, industry data and specialist remuneration benchmarking.

The important part is how the information is used.

Suppose you employ a Finance Manager.

A market search might show Finance Manager salaries ranging from $110,000 to $170,000.

That range is not particularly useful until you understand why it is so wide.

A Finance Manager in a 30-person business may handle budgeting, reporting, payroll and day-to-day finance operations.

A Finance Manager in a large multinational may manage a team of 20 and be responsible for several business units.

The title is the same, but the jobs are different.

Good remuneration benchmarking therefore requires some judgement.

The question is not simply, "What does a Finance Manager earn?"

A better question is, "What does the market pay for a Finance Manager with responsibilities similar to ours?"

Decide where you want to sit in the market

You then need a simple remuneration philosophy.

This does not need to be complicated.

A small business might decide:

We generally aim to pay around the market median for most roles, while allowing higher remuneration for scarce skills, critical positions and exceptional capability.

That is already enough to guide many decisions.

Another business might deliberately pay above market because recruiting experienced employees is difficult.

A smaller company may decide that it cannot always match large-company salaries, but can offer flexibility, broader responsibilities, faster career progression or other benefits.

There is no rule saying every organisation should pay at the same market position.

What matters is that the decision is deliberate.

Build salary ranges instead of single salary numbers

Once you have reasonable market benchmarks, turn them into salary ranges.

Suppose the market reference for a particular level is $100,000.

You might create:

The midpoint represents the market reference.

The range gives the business room to recognise different levels of experience and capability within jobs of broadly similar size.

An employee who has recently moved into the role may sit below the midpoint.

A fully experienced employee who performs the job independently may sit around the midpoint.

Someone with substantial experience and sustained strong performance may sit above the midpoint.

This is much more practical than assuming everyone doing the same job should receive exactly the same salary.

Keep the number of salary ranges manageable

A common mistake is creating a separate range for almost every job.

If you have 40 employees and 30 salary ranges, the framework is not really providing much structure.

Where possible, group comparable jobs together.

For example:

These figures are only examples.

Your actual ranges should reflect your own jobs and relevant labour markets.

Some specialist roles may need different treatment, but most employees should fit comfortably within the main structure.

Put every employee into the framework

This is where the exercise becomes genuinely useful.

Once the salary ranges exist, compare each employee's current salary with the midpoint of their range.

Suppose the midpoint is $100,000.

One employee earns $82,000.

Another earns $98,000.

A third earns $117,000.

Their position against the midpoint would be:

This is not an automatic pay-rise calculator.

Employee A does not automatically require an 18% increase, and Employee C is not automatically overpaid.

The numbers simply tell you where to look more closely.

Investigate employees below the range

If someone earns less than the minimum of the salary range, find out why.

There may be a reasonable explanation.

The employee may have only recently moved into the role.

The job may have been placed at the wrong level.

The responsibilities may have expanded significantly since the employee was originally hired.

The employee may also have fallen behind the market because their salary has not been reviewed properly for several years.

Once you understand the reason, you can decide what to do.

A business does not necessarily need to correct every gap immediately.

If several employees require substantial market adjustments, the cost may need to be spread across more than one remuneration review.

What matters is having a plan rather than continuing to ignore the problem.

Do not panic about employees above the range

You will probably find employees who are already above the normal salary range.

This does not automatically mean their salary should be reduced.

There may be several reasonable explanations.

The employee may have scarce expertise.

They may have been recruited during a particularly competitive market.

They may previously have held a larger role.

The company may have made an intentional retention decision several years earlier.

The remuneration framework is primarily there to improve future decisions.

If someone is materially above the range, the business might provide smaller future base-salary increases while the market range gradually catches up.

The important thing is to understand why the employee sits where they do.

Use the framework to guide annual salary reviews

This is where a remuneration framework can save a small business a considerable amount of time.

Instead of each manager deciding independently what percentage increase an employee should receive, salary position can be considered alongside performance.

For example, an employee who is performing strongly but sits well below the midpoint may justify a larger increase.

An employee performing strongly around the midpoint may receive a normal increase.

An employee who is already positioned near the top of the range may receive a smaller base-salary increase, with strong performance recognised through a bonus where appropriate.

This does not mean you need a complicated salary increase matrix.

It simply means asking two questions together:

How well is the employee performing?

Where are they already positioned?

That produces a much more balanced decision than performance alone.

Avoid permanently increasing salary for every good year

Small businesses often reward excellent performance with a large permanent salary increase.

That can work for a while.

The difficulty appears after several years.

An employee receives 10% because they had an excellent year.

The following year they perform strongly again and receive another large increase.

Eventually their salary may be considerably above the market value of the job.

Strong performance should be recognised, but base salary is not the only way to recognise it.

Once an employee is appropriately positioned within their range, a performance bonus or another form of variable remuneration can sometimes be more suitable.

That allows the employee to benefit from an excellent year without permanently increasing the business's fixed salary cost every time performance is strong.

Treat promotions as a separate decision

A promotion should generally mean the employee is moving into a genuinely larger job.

It should not simply be another name for a good performance review.

Suppose an employee currently earns $100,000 and moves from Level 3 into a Level 4 role.

The Level 4 range might be:

Minimum: $105,000

Midpoint: $125,000

Maximum: $145,000

The business might increase the employee to $112,000.

That gives them a meaningful increase while leaving room for further salary progression as they develop in the larger role.

There is no need for a blanket rule that every promotion receives 10%.

Look at the employee's existing salary, the new range and how ready they are for the new responsibilities.

Use bonuses where they make sense

Not every small business needs a bonus plan.

Where bonuses are used, they should be kept simple.

A manager might have a target bonus equal to 10% of salary, with most of the outcome based on company performance and a smaller part based on individual performance.

Sales employees may have a separate commission plan because their results are more directly measurable.

Senior employees may have larger variable remuneration opportunities because they have more influence over the overall performance of the business.

The important principle is that people should be rewarded against outcomes they can genuinely influence.

Review sales roles differently

Sales remuneration often requires separate analysis.

A salesperson earning:

$90,000 base salary

plus $30,000 target commission

has on-target earnings of $120,000.

When benchmarking the role, it would be misleading to compare the $90,000 base salary with another company's $120,000 total sales package.

You need to look at both fixed and variable remuneration.

For sales roles, consider:

base salary

target commission

on-target earnings

sales target

actual commission opportunity

and how achievable the target really is.

The sales commission plan should also make sense for the economics of the business rather than simply matching a percentage used elsewhere.

Check internal equity

External market data is important, but do not forget what is happening inside the company.

Suppose two employees perform substantially the same role.

One earns $92,000 and the other earns $108,000.

There may be a reasonable explanation, such as experience, performance or additional responsibilities.

There may also be no good explanation at all.

That is precisely why a remuneration framework is useful.

When salaries are reviewed one person at a time, inconsistencies can remain hidden for years.

When everyone is placed into the same structure, those inconsistencies become much easier to identify.

Be consistent about superannuation

Australian salary discussions can become confusing because some numbers include employer superannuation while others do not.

A candidate may say they currently earn $120,000 but mean $120,000 base salary plus superannuation.

Another employer may advertise a $120,000 package inclusive of superannuation.

Those are different remuneration outcomes.

Choose one approach for the framework and use it consistently.

For example, you might build salary ranges using base salary excluding employer superannuation and show superannuation separately.

The particular approach matters less than making sure managers and employees understand which number they are discussing.

Check minimum employment requirements before relying on the framework

An internal salary range does not override Australian employment requirements.

If an employee is covered by a modern award, enterprise agreement or another minimum employment requirement, those obligations still apply.

This becomes particularly important where employees regularly work overtime, receive allowances or penalties, or participate in commission arrangements.

The internal salary range should therefore sit above the relevant legal minimum rather than being treated as the only reference point.

For small businesses, it is sensible to confirm applicable employment requirements when establishing the framework and again when roles change materially.

Give managers a few clear rules

Managers do not need to become remuneration experts.

They do need enough guidance to avoid creating new inconsistencies.

A practical set of rules could be:

New employees are generally hired between the minimum and midpoint of the range unless there is a clear reason to pay more.

Salary increases consider performance, market position and internal equity.

Promotions require a genuine increase in job responsibility.

Offers above the salary range require additional approval.

Counteroffers should not be automatic. The business should first establish whether the employee is genuinely underpaid.

These rules are straightforward, but they prevent many of the problems that cause remuneration structures to become inconsistent.

Decide who can approve exceptions

A 30-person business does not need a remuneration committee.

It does need some basic approval rules.

For example:

The purpose is not to create additional paperwork.

It is to prevent expensive remuneration commitments being made before somebody has checked whether they are consistent with the rest of the business.

Set the remuneration budget before salary reviews begin

This is particularly important for small businesses.

Suppose total employee base salaries are $3 million.

A 4% overall salary review budget would cost approximately $120,000 per year before considering associated on-costs.

That does not mean everybody receives 4%.

One employee might receive 2%.

Another might receive 4%.

Someone who is materially below market could receive 7%.

An employee who is already substantially above their salary range might receive no base-salary increase.

The important part is understanding the total cost before individual decisions are approved.

Without an overall budget, it is easy to approve reasonable-looking increases one at a time and then discover that the total increase in payroll is much larger than expected.

Review the framework once a year

A small business generally does not need constant remuneration benchmarking.

An annual review is usually enough unless the business is experiencing rapid growth or operating in a particularly volatile labour market.

Review whether market salaries have moved materially.

Update salary ranges where necessary.

Then look at where employees sit within the updated ranges.

Moving a range by 4% does not mean every employee automatically receives a 4% increase.

The salary range reflects the market value of the job.

The employee's salary reflects where that particular person sits within the range.

Keeping those two concepts separate makes annual remuneration reviews much easier.

Keep the administration simple

You do not need specialist remuneration software to manage a small workforce.

A spreadsheet can work perfectly well if it is maintained properly.

Useful columns might include:

Add a column explaining why any salary change is proposed.

Typical reasons might include market adjustment, performance, promotion, internal equity or retention.

This simple requirement improves decision-making because managers need to explain what problem the proposed increase is actually solving.

You do not need to fix every historical problem immediately

The first time you build a remuneration framework, you may uncover quite a few issues.

Some employees may be below market.

Others may be above market.

There may be people performing similar work on significantly different salaries.

Trying to correct everything immediately may be unaffordable.

Prioritise the most significant issues.

Address any legal minimum-pay concerns first.

Then look at employees who are materially below market, obvious internal inconsistencies and critical roles where the business faces a genuine retention risk.

Other issues can be corrected progressively through future remuneration reviews.

A framework should help the business make better decisions from this point forward rather than forcing it to solve every historical salary decision overnight.

A simple framework is usually the best framework

A small business does not need 20 job grades, hundreds of job codes or a complicated job evaluation system.

It needs enough structure to make remuneration decisions consistently.

For most businesses, that means understanding the jobs, creating a sensible number of levels, benchmarking the market, building salary ranges and establishing basic rules around hiring, salary reviews and promotions.

The value of the framework becomes clear the next time an employee asks for a substantial pay increase.

Instead of deciding whether the request simply sounds reasonable, the business can ask better questions.

What is the market value of the job?

Where is the employee positioned within the salary range?

How are comparable employees paid?

Has the job genuinely become larger?

How has the employee performed?

What can the business afford?

A practical remuneration framework will not make every salary decision easy, but it will make those decisions far more consistent and much easier to explain.

For a small business, that is usually all the framework needs to achieve.