Even though your company is a small business, developing an employee pay or compensation plan is good for several reasons. With a smaller business, good employees are even more important than for a larger company that has many employees. A pay plan gives your people a sense of fairness and can motivate them to help increase the profitability of your company.

No Complication Necessary

Before you start to develop a binder full of pay plan information, think about what you need from your employees and what they expect from you. An overly complicated pay plan can be almost as much trouble as not having one. Your plan should fit your business, the number of employees you currently have and your plans for adding more. Make the plan as detailed as necessary without trying to reach something the federal government would consider complicated.

Fairness and Certainty

Employees of a company -- especially a more intimate, smaller business -- do not like to think they are being treated unfairly, such as being underpaid or paid less than someone else doing the same type of work. A pay plan shows an employee how her compensation is structured and how her job fits into your business. Your plan should also explain when employees should expect raises and how much they can expect. Few things are more frustrating for an employee than believing it is time for a pay increase and the boss is saying and doing nothing to make that happen.

Pay for Performance

Depending on your business and the types of jobs your employees do, the pay plan can be structured to let employees earn more if the business does well. The classic example is a commission plan for salespeople. But you might want to think about performance-related pay incentives for other types of work such as customer service or even managing inventory. Any employee whose work can directly impact the sales or expenses of your business may be motivated by performance-related pay incentives.

Attracting New Employees

If your plans include expanding your business, a written pay plan can help you attract and hire new employees. Showing a prospective new hire how much he will earn and what he can earn by staying with your company can excite him. Someone looking for a job likes to know there is potential for more money than the starting wage. Use your pay plan to show prospective new employees how they can benefit by coming on board to help your business grow.