One of the key reasons people work is, of course, money. Although money is just one component of employee satisfaction, how much you pay your employees and the factors you use to establish pay scales and award raises, bonuses and incentives can profoundly affect the quality of your workforce. Employees who are underpaid are more likely to seek new employment. As a result, it's important for small businesses to offer compensation that meets or exceeds the average for your region or industry.

For a one-person company, decisions regarding wages, health insurance, sick leave, retirement and educational assistance aren't likely to bring a flood of red ink to your bottom line. You can give yourself a raise, take a few extra vacation days, add special areas to your medical coverage – do anything you please – without losing sleep over whether these extra expenditures will put you out of business. But you enter an entirely new phase of operation when you hire your first full- or part-time employee. Once you're responsible for someone else's well-being, you must become more structured in your basic approach to compensation and benefits.

Having access to up-to-date, regional-specific salary information for the positions you need to fill can help you structure your wage policies and, in the process, provide you with a competitive advantage. Government and association reports, as well as salary surveys can be valuable ways to benchmark your compensation levels and identify trends affecting wages at small businesses like yours. Robert Half produces an annual Salary Guide that covers current and projected salaries for thousands of positions in a variety of professions. The 2010 Salary Guides include a new Salary Center that features additional commentary on hiring trends and a salary calculator.

If you lack the budget to raise salaries, you can still distinguish yourself from other employers by providing special perks not everyone offers or focusing on elements that increase the appeal of your workplace. Some small businesses opt for variable pay programs in which incentives, bonuses, commissions, profit sharing or lump sums are awarded periodically in addition to base salary. The additional compensation is generally tied to individual performance and the company's profitability.

To ensure your compensation and benefits package is current and fulfills the needs of your staff, hold two-way discussions with employees periodically. Find out which incentives are most important to them so you can continue refining your offerings. For instance, you may discover people prefer a day off to sports tickets as a reward for their hard work.