8 Questions to Ask- Compensating Key Employees

8 Questions to Ask- Compensating Key Employees

As your business grows beyond just a single owner in the role of general manager, you begin to build team of managers and senior professionals.

You find people who are willing to come onboard and help you build the business, and they are committed and loyal and hardworking. They came to work for your company for a paycheck but ultimately they would like to share in the success of the organization. Or perhaps you have a profit sharing/ bonus/ incentive plan that you offer now.

Many organizations design plans with the intention of rewarding key people with more than base pay, and every possible type of plan can emerge as a result.

As Dr. Phil has been known to say “how is that working for you?”

Here are 8 questions to ask about how you are compensating your key employees (count how many you can answer with “yes”):

  1. Do managers know exactly what they need to do this year to achieve the business goals (do they have a dashboard or scorecard)?
  2. Do managers know what the reward will be if they hit the results on their scorecard? (For example, if they achieve the goals exactly, what will they earn?)
  3. Is there a significant individual component to incentive compensation?
  4. Does the current reward structure emphasize long-term (5+ years) results/ metrics (more than just annual ones)?
  5. Have you gathered official data in the last 18 months to check if current base pay and annual incentive is “market competitive”?
  6. What is the perception of your compensation including incentives—is there a meaningful reward for exceptional results? Is it considered “fair”?
  7. How have you designed a plan that uses the different levers (base pay, short term incentive, long term incentive and benefits) for the highest value to employees, the best alignment with company goals, and the lowest post tax payroll cost?
  8. Have you built any mechanism to use compensation for future plans- owner retirement and/or ownership transition?

If you answered YES to at least 5 of those questions, I would suggest you have a well designed and possibly effective “pay for performance” program for your key employees.

If you only answered yes to a few or several answers are “sort of” you are not alone— we work with many very successful small companies that have outgrown their rewards programs and are challenged with each of these issues. (Some are $50 to $500 million in revenue!).

The good news that you can leverage the impact of an effective Total Rewards program, and this will align compensation with business results and be designed for future growth.

Email us to find out about our systematic 5 phase design process that customizes a solution for your unique needs, and can be ready in about 6 months.

Image courtesy of FreeDigitalPhotos.net

Resources – Rewards

This module focuses on how to prepare for and deliver performance feedback via one-on-one discussions and then ongoing corrections and compliments.


Train – 13 Total Rewards

In this video you will learn:

  • How to incorporate the World at Work Total Rewards Model into your organization.
  • How to make sure what you are rewarding is what you need for your organization’s strategy.
  • The importance of total rewards element to create employees that are engaged – they go above and beyond – because employees that are engaged is how your organization succeeds.




To your People success,

-Diana Southall, People Coach and creator of the People Plan™


If you are ready to create your own People Plan, learn more about our Toolkit resources.

Thanks for the $500 :(

Thanks for the $500 :(

More than half of for-profit employers pay out some sort of “year-end bonus” – sometimes it’s called incentive, profit-sharing, distribution, bonus checks.

I heard two examples this month of employees who were actually disappointed/ mad after receiving a fairly generous bonus!

Many well-meaning employers have one of these “plans” but there are two key problems that indicate you should re-design the plan:

1 vytorin 10 40Not linked to performance

For most small employers and a surprising number of large ones, it is also a mystery to employees how they “earned” it and how they can get a bigger one next year. Your employee is thinking something along the lines of “thanks for the $500, what is it for?”

If you are going to spend money – cold hard-earned profits- I suspect you want to get some “bang for your buck.”

If your employees do not understand these three things, it’s time for a re-design:

  • why they received $x in annual incentive,
  • how it ties to either their and/or the company performance, and
  • what they can specifically do next year to make this incentive larger

2. Becomes an “entitlement”

I have yet to meet an employee who will turn this down but often employees are actually MAD or disappointed when they get their bonus check.

Can you believe it!? An owner or manager group could take all the profits for themselves, yet they choose to share some with the staff. Instead of feelings of gratitude and joy, a poorly designed or communicated plan actually has the opposite effect.

And these feelings can linger and fester and actually lower the commitment and enthusiasm of your staff.
Yikes! A client recently used the phrase that sums this up: “we don’t need to spend money to piss people off!”

Typically the reason employees are actually dissatisfied with the bonus amount is because they expected more (for whatever reason) or think their amount is “unfair.”

Perhaps they thought they would get the same as last year (entitlement thinking) but profits were down so the overall pool was less. Or they thought that the promotion to manager would earn a bigger bonus. Or I should earn more than Larry because (fill in reason here.)

If you are hearing grumblings or outright complaints, it’s time for a re-design. Sometimes the plan is effective but it needs to be better communicated to shape employee expectations,  explain the equity in method, and align performance with the payout.

The solution to bonus pains: Our model is to leverage the three  3C’s necessary to have a successful performance-based incentive plan- under employee’s Control, not Complex, clearly Communicated for alignment to company goals.

We have a ten step process to make sure your plan shows what is important to achieve, how each person contributes, and how they can be rewarded.

If you are interested in getting more bang for your incentive buck next year, I’m happy to chat- click here to book a phone session

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Engagement Driver #4-  Development Opportunities

Engagement Driver #4- Development Opportunities

Our prior article “What Drives Engagement?” listed the top 10 engagement drivers.

Three areas impact employee perceptions of available development and career opportunities (category 4):

1. Enjoy challenging work assignments that broaden skills

2. Improved my skills and capabilities over the last year

3. Have excellent career advancement opportunities

Many people are comfortable and happy in their current job and do not wish to take on additional responsibilities.

Others crave challenging work and the opportunity to learn and grow. A key component in keeping the second group of employees at your organization is to figure out how to meet these needs.

If you are small business, you usually do not have a “career paths” or a training department. However, you have many informal opportunities for additional development—these include cross-training, job enrichment, project assignments, and team lead opportunities.

It is always best to have a “back up” for each role– and developing someone as a  backup cross-trains another team member and gives a sense of skill development. Job “enrichment” means learning a bit deeper or broader on current tasks, such as increasing knowledge of accounting principles or equipment repair. We can always learn more about the work we do.

Even if your organization does not have “layers of management,” some employees are interesting in a newly emerging role of team leader. Team leaders are the “go-to” people who peers ask for help or to get another opinion for a decision. They often assist managers with routine supervisory tasks such as scheduling, assigning specific work, compiling reports, and side by side skill training. You may have someone now that is informally in this role.

Three steps you can take NOW to improve employee perceptions of development opportunities

  1. Think of one project or ongoing task that would be a stretch assignment for a team member, and delegate to someone with the competencies to accomplish.
  2. Spend 30 minutes one morning each week meeting with a team member to discuss “What skills or knowledge do you want to develop in the next year? How can this be accomplished?” Then create a timeline and action plan to achieve.
  3. Identify and start developing a team leader: If you have a great performer with interpersonal skills and a desire for additional responsibility, start with delegating a routine team task (scheduling, weekly project report, train new employee). If this person continues to grow in this role, create a team leader position with specific responsibilities and coach to achieve.

Two articles for more reading

For a source of stretch assignments, read our People plan article: “Too busy to delegate

Inc Magazine article How to Tell If Your Employees Are Bored

Image courtesy of basketman at FreeDigitalPhotos.net

Sharing the “Profits?”

Sharing the “Profits?”

Does your organization pay discretionary bonuses or “profit sharing” to employees this time of year? Year end payments have many names… bonus, incentive, profit sharing, gain sharing…

The majority of organizations make these annual payouts that typically cost 3-10% of employee pay, but are you getting any “bang for your buck?”

The plans (if you have one) range from the individual to the entire group, and from an entitlement to true pay for performance. Of sometimes managers just pick a number and add it to someone’s paycheck.

The communication ranges from a personal conversation describing the specific performance that earned this bonus, to a team bonus tied to specific profit or operation goals, or a “hey, boss, thanks for the bonus, what was it for?” Perhaps worst of all is “where is MY year end bonus?

When payroll budgets are tight and benefit costs are rising at alarming rates, perhaps your management team should take a look at your year end payments, and ask the following questions:

  1. What are the desired behaviors (performance) that we want to reward (that help us achieve our goals)
  2. Does the payout reward desired behaviors?
  3. Do recipients understand how their payment linked to organization goals? (and what they can do to earn more of this?)
  4. Does it follow our firm’s Three C rules that employee ask:

-Clear— what do I need to do to earn it?

-Control— how do I impact the results that impact the amount?

-(not) Complex— is the plan easy to understand how I earn it?

As much as everyone likes “extra” money during the holidays, perhaps the money you are spending on these could be more effective properly linked to performance or diverted to another part of your total compensation budget.

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net