I am working with several clients on compensation and thought it might be good to help you zero-in on how to create effective compensation. 

1.  What is the objective?  Compensation reinforces what you want employees to achieve.  The starting point is not the amount you are willing to pay, but rather defining what behavior are you trying to motivate. 

Be careful when paying to motivate a specific behavior.  For instance, if you pay commissions on gross revenues then your profit margins may suffer;  or if you pay billable resources a higher hourly rate when they go beyond a minimum number of hours then they may hoard work and other resources may become unhappy.

2.  What are you willing to pay?  There are two aspects to this:  The first is how much you pay the person to achieve your objectives for the job;  the second is are you willing to pay the person more if they help you make more money than you expect?

The second area is where most people fail.  Nucor Steel, Lincoln Electric and other companies that pay people based on their results prove that when you are willing to share the additional profits earned on greater results then people more often exceed your expectations.

3.  Simple versus detailed.  There are benefits to having a simple compensation plan, however you can motivate people to achieve more when you track more data to prove the results people are achieving, and then pay them based on those results.  Work to find a balance. Sometimes the tracking can be mastered in a reasonable amount of time in software.

4.  Let people control their destiny.  The best compensation plans let employees control how much they make based on the results they achieve.  You should not have to babysit or nag employees to perform.  Put the systems, processes and boundaries in place and then hold them accountable.  If they fail to perform then the system fires them.  If they perform then the system pays them what they are due. If they exceed expectations then they make more money.  Even a properly explained complicated tracking system sets clear expectations so the end-result confirms the value of the work performed.

5.  Pilot any new plan.  Introduce a new compensation plan as a pilot so you can make changes and to smooth the transition.  The objective is to give your people more opportunities to make more money based on the results they can achieve, but often this means moving them off total salaries.  During the pilot period work closely with them to achieve more and see how the new plan is in their best interest, but pay them whichever plan is more money during the pilot.  Adjust the plan if necessary, but if someone cannot deliver results then it may be time to find someone new.

MEETING IDEA

Simple meeting idea this week:  Figure out how to pay your people so 25-50% of their compensation is based on their performance.  Develop a draft in private and then share it confidentially with people your trust.  When you are confident you have a viable plan then pilot it.

If you need help, let me know.