Paying For Performance – Does It Work?

If your company has problems motiving its employees to reach financial or managerial goals, perhaps you need to take another look at just how you’re compensating your team. For companies who pay flat hourly wages or salaries, is there an incentive in place that makes your employees want to go that extra mile? If not, it may be time to consider re-evaluating how you calculate your paychecks. In a recent study, 51% of respondents said that profit-sharing or other compensation based on performance would motivate them to work at a higher level. Paying for performance is a great incentive for your workers to work just a little harder – after all their efforts aren’t just increasing the company’s bottom line, but their paychecks as well.
There are a few different ways in which you can pay for performance, ranging from cash bonuses to tangible non-cash benefits. Each type of compensation can fit into a different area of your business – the plan that is right for your sales team will not be well-suited for upper-level management. The key is to work with your financial team to find the best incentives for the various positions in your company.
Awarding Bonuses
The most common type of performance-based pay comes in the form of bonuses. These could be monthly, quarterly or yearly, but all generally have one thing in common – the size of the bonus (or even the fact that it is awarded in the first place) is dependent on the employee reaching a target or achieving a goal. Bonuses can either be a flat amount for reaching a milestone, or varying such as a percentage of total revenue. Pay bonuses are an ideal way to compensate management-level employees and to motivate them to continually grow their capabilities and reach new goals.
Commission-Based Compensation
Commission-based compensation is a method of paying for performance which has thrived in many different fields. Any type of business with a focus on sales can implement some sort of pay schedule based on commission. For some industries, such as real estate, sales people are often not given a salary, but instead compensated entirely by commission. Others, such as a number of high-value electronics retailers, offer employees a competitive hourly wage or salary, as well as a small percentage of their sales in the form of commission. Directly compensating employees for bringing in revenue is a highly effective way to increase sales volume.
Non-Salary Benefits
In addition to directly compensating your employees for their performance, there are a number of other benefits you can offer. Some of the most popular non-salary benefits among employees are healthcare plans and company vehicles. By awarding these benefits based on employee performance, you are still able to award your team for reaching their performance goals, but are also often able to take advantage of tax savings or other financial advantages at the same time. Non-salary benefits are great because they can often be used as motivation for a myriad of different positions.
Finding the right compensation scale for your company can be a difficult process. There are numerous different types of performance-based compensation, including bonuses, commission and other benefits. The trick to maximizing your employees’ performance is to identify the benefits that will motive them, and then developing a clear plan that outlines how reaching preset goals can equal those employees being rewarded. Once identified, you will likely find keeping your team focused is much easier when their financial future could get a big boost by the growth of your business.