The Perfect Formula for Employee Compensation

successFor many workers, it’s pure motivation, but for some employers, it’s a necessary payoff to build and sustain crew loyalty.

What am I talking about? Compensation. When employees do well, companies (usually) follow. Whether you see it as fair or unfair, it simply makes sense to reward the quality work that brings your company bigger profits and more customers.

Unlike what you see at huge, multinational corporations, compensation doesn’t have to take the form of large hunks of stock, five-digit bonuses or scuba vacations to Bimini. As the owner of a small or midsized business, whatever you reward your employees must be practical and reasonably priced, enough to encourage staffers to go above and beyond, but not enough to put your company in financial jeopardy.

The core aspect of compensation is attainability. Reachable goals. In other words, if your team increased sales 8% over the previous year, you shouldn’t demand that they boost sales by 75% this year to earn compensation.

Compensation Cheat Sheet

If you’ve ever wanted to reward your employees, but you just don’t know how much you should pay, here’s a compensation cheat sheet to guide your decision:

  • Individual achievements: 10 to 40% of compensation.
    Individual achievements are achievements that focus on service quality, productivity, compliance and process improvements, among other things. Performance targets should be clearly stated, reasonable to obtain and easily measurable. These targets are specifically solo, discouraging outside interference from other employees. Individual targets, using an accounting firm as an example, might range from how many clients the employee serves to the number of nearly flawless tasks performed. If you can’t develop reachable benchmarks or targets, individual achievement becomes exactly what you don’t want—arbitrary.
  • Team achievements: 5 to 20% of compensation.
    Team achievements serve specific groups of people. Teams can be made up of two people or 20, but they should not make up more than 20% of an employee’s compensation. Why? Because employees must depend on other people to reach these goals. Remember: Team achievements should encourage employees to feel great about their company as a whole and should not be related to company trends out of the team’s control. Profit margins, industry rankings and efficiency measures are examples of great benchmarks for team achievements.
  • Bonuses: No more than 10% of compensation.
    Unlike compensation, which is based on tasks within an employee’s job description, bonuses reward enterprising thinking and risk taking. Bonuses are the bounty of true out-of-the-box thinking, from generating positive publicity for your company to developing a new, cost-saving process. Develop your bonus bait depending on the position of each individual employee. For an executive, serving on a high-profile board warrants a bonus; for a non-executive, recruiting a prestigious new client is a much more attainable goal.

Encouraging the Right Mind-Set

Each time you reward your employees with compensation and bonuses, you’re encouraging them to adopt a Think Like an Owner (TLO) mind-set. Once your employees feel like they have a real voice within your company, and they reap rewards along with the overall business, they’ll work harder, be more entrepreneurial and perform well beyond your wildest expectations.


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