Compensation: Do You Have the Right Plan? Formulas, Package, Incentives, Performance Indicators, Base Salary, Improve Company Loyalty

        Like the rat in the cage we are driven by rewards.  When compensation becomes stagnant so does productivity.   If like rats we are paid by the time we spend in the cage then the expected level of productivity is simple compliance.   By focusing on minimum standards employees tend to get there and stay there.   Is that where you want to be?  What does your company need?  What should you look for when reviewing your compensation plan?   Below are some important points to consider:

• If you need to make changes, be wary of copying formulas.   The best plan is the one that works best for your unique circumstances.   
• Don't forget to look outside your industry when looking for the right compensation plan. 
• Sometimes combinations of plans work the best.   
• Don't forget to include non-compensation benefits in your overall package. 
• Look first at what your 'drivers' or key performance indicators are and make certain to base your compensation plan on those factors. 
• Tell your employees you are developing a compensation plan with incentives and you would like their input.   That way, once the plan is in place, there should be no complaints.   
• Talk about the new plan in your business, group and team meetings.   You could start by using small gifts or cash rewards for top performance which helps employees get accustomed to the idea.
• Use spreadsheets to work out the ranges of possible plans.   
• Be wary of straight commission as it can often create internal friction.
• Once you have a plan you can test backwards to see how it would work.   
• Depending on your plan, you can do a trial run and see how employees react.
• Make certain that poor performance is not rewarded.   Establish a minimum performance level and make it the low end of your compensation scale. 
• Under ideal circumstances top performers should get at least  two or three times more than minimal  performers. 
• "Skew" the better rewards toward top performance.   
• Avoid straight hourly or straight salary plans as they provide little incentive.   
• Make sure your plan is easily trackable by both you and your employees. 
• It is better to have a low base wage/salary with a large incentive component.  If the base is too high there is little incentive to perform at higher levels. 
• Expect minimal employees to whine, complain and quit after the plan is in place.
• Expect to see more qualified and motivated  employees wanting to join your company. 
• Expect your better employees to become more loyal.

     A well designed compensation plan can give your company a strong competitive advantage.   Your competitors may find it impossible to compete directly with you for the best employees. 

Jack D. Deal