A long-standing theory (I hesitate to call it a “practice”) in employment circles suggests that the pay level for a role in a small business will pay less than a comparable role in a larger operation. At face value, this makes sense, given potential for a wider range of resposibilities in larger organisations. But how accurately does the theory fit reality? I examine this by drawing on the results from MHR Global’s March 2024 pay survey.

In 30 plus years in remuneration management roles I have often heard HR practitioners, recruitment consultants – and even experienced remuneration consultants – suggesting that pay levels typically follow organisation size. The theory is that a job in a small organisation will generally be paid less than a similar job in a large organisation. At a superficial level, this appears to make sense.

MHR’s March 2024 remuneration update confirms that this apparently widely accepted theory is certainly accurate at Chief Executive level. Nationally, the median total remuneration for Chief Executive ‘A’ (which covers CEOs of large, diversified and multi-divisional organisations) is $440 298.  In comparison the median for Chief Executive ‘B’ (which covers CEO roles in typically smaller, non-diversified, single focus commercial organisations) is significantly lower, at $340 824. Clearly at this level the theory holds water. But just how accurate is it when we consider remuneration levels for other Top Executives and General Staff roles? Let’s examine this, again drawing on MHR Global’s March 2024 survey results.

Top Executives

Nationally, median total remuneration for all Top Executives was $246 476 at March 2024, shown by the red line on the accompanying chart.  The chart also shows that median total remuneration for organisations employing 150 to 299 staff, and for those employing 300 to 499 staff, are both below this level, as could be expected. Logically, at the other end of the scale, national median total remuneration for large organisations, employing 500 or more staff, is significantly above the national median for all Top Executives. What is surprising however, is that the median for SMEs employing up to 150 staff, is also significantly above the national median.

Surely, if the widely accepted “theory” is to hold true, this figure should sit below the national median – if not also below the median for those organisations employing 150 to 299 staff? One likely factor is that close to a quarter of the Senior Managers in SMEs have five or more years of service in the current role. This compares to just under 8 percent in the sample nationally. This “longevity” in the role is also reflected in higher remuneration levels; the greater proportion of staff with this longer service in SMEs naturally pushes the median total remuneration level up.

General Staff

A similar analysis for all General Staff shows that the national median is $67 056. Surprisingly however, the median for SMEs (with up to 150 staff) leads all groups, with a national median which is significantly higher than the national median for all General Staff. Equally surprising, is the fact that the median for the largest organisations is actually the lowest across the four staffing categories.

There is perhaps a relatively straightforward explanation for the latter point. Large organisations are far more likely to employ significant numbers of people in entry level roles for school leavers or new graduates, and in other roles which are paid around minimum rates. As a result of having a larger proportion of staff at the lower levels within the pay structures, the median for these organisations is reduced. This also helps to explain why the median for SMEs is actually higher than that for the other groups. In contrast to the large organisations, a significant proportion of SMEs are not able to employ large numbers of entry level staff. Logically, with reduced capacity to train large numbers of staff, the likelihood is that when recruiting, many SMEs will be looking for candidates with previous experience in a similar position prior to appointment, and therefore able to “hit the ground running”. To attract such candidates, higher remuneration must be offered. As a result, median total remuneration for the SME group is lifted, in the absence of significant numbers of lower paid staff.

So, what does this all mean?

The obvious lesson here is that the widely accepted theory that remuneration levels are influenced by organisation size is little more than a myth. While it clearly applies at CEO level, and may hold for individual positions from time to time, the reality is that in a volatile labour market, relative rates will not always adhere to any discernible “national pattern” based on organisation size. Rigidly following a clearly flawed assumption is therefore unlikely to help employers attract key staff in a competitive market.

To be even more pragmatic, if you are responsible for setting pay levels in an SME (or any organisation, to be fair), don’t presume that anecdotal evidence (or, in the current environment, an AI query) is accurate: check market rates properly using a credible market survey (or surveys), before making critical remuneration decisions.