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”):
- Do managers know exactly what they need to do this year to achieve the business goals (do they have a dashboard or scorecard)?
- 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?)
- Is there a significant individual component to incentive compensation?
- Does the current reward structure emphasize long-term (5+ years) results/ metrics (more than just annual ones)?
- Have you gathered official data in the last 18 months to check if current base pay and annual incentive is “market competitive”?
- What is the perception of your compensation including incentives—is there a meaningful reward for exceptional results? Is it considered “fair”?
- 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?
- 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