Ask five founders how they set salaries and you will often hear five different versions of the same story: they guessed, negotiated case by case, and now pay two people doing identical work wildly different amounts. That approach feels flexible in the moment, but it quietly creates resentment, encourages your best staff to compare notes and leave, and leaves you with no defensible answer when someone asks why their coworker earns more.
A proper salary structure fixes this. It does not mean rigid, impersonal pay bands with no room for negotiation. It means having a clear, defensible logic behind every number on your payroll, one you could explain honestly to any staff member who asked. Here is how to build one, from scratch, for a Nigerian business of any size.
Step 1: List Every Role and Group Similar Ones Together
Start by listing every position in your business, current and planned. Then group roles that require similar skill levels and carry similar responsibility into bands. A typical small business might use four bands: entry level, roughly zero to two years experience, a customer service assistant or junior sales rep; mid level, an experienced operations lead or accountant; senior, a department head managing other staff; and leadership, roles reporting directly to the founder.
This grouping matters because it gives you a defensible reason for pay differences. Someone earns more because their band carries more responsibility and requires more experience, not because they negotiated harder or happened to be the founder's cousin.
Step 2: Research What the Market Actually Pays
Before setting any number, find out what similar roles pay in your city and sector. Job postings on LinkedIn, Jobberman, and MyJobMag give a rough sense of current market rates. Talking to other founders in your sector, informally, at a business association meeting or a WhatsApp group of fellow entrepreneurs, often gives more accurate numbers than public postings, which sometimes understate real offers.
Pay also varies meaningfully by city. An operations manager role that commands four hundred thousand naira monthly in Lagos might reasonably pay somewhat less in Kano or Enugu, reflecting genuine differences in cost of living and local competition for talent. Do not apply a single national number blindly across every location your business operates in.
Step 3: Set a Pay Range for Each Band, Not a Single Number
Rather than fixing one exact salary per role, set a range, a minimum and maximum, for each band. This gives you room to pay a highly experienced mid level hire toward the top of the range while paying a newer mid level hire toward the bottom, without inventing an entirely new justification each time. It also gives existing staff a clear path: growing skill and tenure within a band moves them toward the top of their current range, and strong performance eventually earns a move into the next band.
Step 4: Decide What Counts as Base Pay Versus Variable Pay
Separate guaranteed base salary from variable components tied to performance, commission for sales roles, a productivity bonus for production staff, or a discretionary bonus tied to company results. A useful starting ratio for sales heavy roles is seventy percent base and thirty percent variable, which keeps income stable enough to plan a life around while still rewarding strong results. Purely commission based pay, common in some Nigerian sales teams, can work for experienced closers but tends to produce high turnover among newer staff who need a stable floor while they learn.
Step 5: Build in Statutory Deductions and Employer Costs From the Start
A salary structure built only around gross pay will surprise you later with the true cost of employment. Every salary offer should already account for Pay As You Earn tax withheld and remitted to the relevant state revenue authority, pension contributions, generally eight percent from the employee and ten percent from the employer once your business crosses the threshold requiring Contributory Pension Scheme registration, and, depending on your size, National Housing Fund and NSITF contributions.
Build a simple payroll calculation sheet, even a Google Sheet is fine, that shows gross pay, deductions, net pay to the staff member, and total employer cost including your own contributions. This prevents the common mistake of quoting a salary you cannot actually sustain once statutory obligations are added on top.
Step 6: Review the Whole Structure Annually
Naira inflation moves faster than most Western compensation guides assume, which means a salary structure that felt generous eighteen months ago may now sit well below what your staff need to maintain their standard of living. Review your entire pay structure at least once a year, and consider a partial cost of living adjustment even in years when you cannot afford full market rate increases across the board. Staying silent on pay while costs rise around your team is one of the fastest ways to lose people you actually want to keep.
Common Mistakes to Avoid
Paying whatever a candidate asks for without checking it against your band structure creates internal inconsistency fast. Keeping salary numbers a complete secret, rather than being transparent about the logic even if not the exact figures, breeds suspicion. And ignoring the true employer cost of a hire, forgetting pension and other statutory contributions when budgeting, leads to painful surprises once your first few hires are on payroll.
Final Thought
A good salary structure is not about being the highest payer in your sector. It is about having a clear, fair, explainable logic that your team trusts, one that rewards genuine growth in skill and responsibility rather than who negotiated hardest. Build that structure once, review it honestly every year, and you remove one of the most common, avoidable sources of staff turnover in Nigerian SMEs.
