Intentional compensation is key to running a successful business and It’s more than just numbers on a check.
Intentional compensation may include profit sharing, commissions, bonuses, health and medical benefits, paid time off, company functions, prizes, giveaways and more.
As the economy improves, more and more small businesses need to consider how they’re paying employees and the messages that they’re sending based on their compensation structure.
You can still fail as a business if you don’t say thank you in your employee’s paycheck even if you do all of the right things in terms of leadership, culture, and communication. When you implement intentional compensation, your message clearly conveys that winning is rewarded and losing isn’t. What are your actions telling you? Are you compensating the people who you value accordingly? Your actions speak louder than words. You can say you value productivity and innovation, but when you don’t demonstrate that in your compensation system, you simply aren’t being truthful.
Reward What You Want Duplicated
Know what you value and reward only what you want duplicated. Employees will naturally gravitate to actions that increase their pay. Always be intentional when considering the three compensation structures I outline below:
Salary—Fixed salary positions reward employees for showing up. They’re great for attracting talent , but they don’t necessarily motivate them to go beyond minimal requirements. In fact, they do just the opposite with very rare exceptions. These rare gems are the employees with fixed salary positions who bear the brunt of the entire team’s workload. While team members chat, go for breaks or long lunches, these workers produce and bring extraordinary value to the company. Unfortunately, I’ve never seen one stay long. They often get frustrated or burn out because often we reward our most productive employees with more work instead of more pay. No wonder they run for the doors!
Profit Sharing—Profit sharing provides a certain percentage of the company’s profits as a bonus to employees monthly, quarterly, or annually. The key to this type of compensation is to ensure that employees know how they specifically contribute to the revenue by either increasing profits or decreasing expenses. This bonus is not something that employees should expect to receive, but rather something that they earn based upon their contributions to the company’s revenue.
Commission—There are many different commission structures that you can implement. Salary plus commissions deliver a small guaranteed salary and a percentage of every sale. Most commission plans are set up this way. Draw plus commissions provides a set amount of money each pay period. It’s very much like a loan since commissions aren’t received until the draw is repaid. The downfall of the draw plus commissions plan is during the launch of a new product. Because the product isn’t proven, sales reps might feel discouraged if the draw balance rises significantly. In that scenario, it’s a good idea to evaluate whether you want to allow for a reduction in the draw balance to allow the employee to receive commissions. Both the salary and draw plans pay for performance and work well when implemented with intention.
It’s never a good idea to reduce the pay of your employees. It’s demotivating and often leads to reduced productivity. If performance is poor, then work with the employee to improve upon it or let them go. You’ll see a better return on your dollar if you pay for a superstar rather than get a great deal on mediocrity.
What kind of commission structure do you offer your employees? Let me know in the comments and be sure to include your company’s name if you’re hiring!