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How to Motivate Employees With Pay…

Author: Charlie Cook   |   November 6th, 2014

Pay DayIt’s been almost 2 years since I took over the management of a small service business but I was lost. Which actually was good news…

Last week, I found myself struggling with questions about compensation -how to focus and reward our growing team. You see the failing business I took over and managed to turn around has been on a hiring spree and is up to a dozen employees. This may not seem like a lot to some, but it brought me to a crucial juncture. 

One team member was scheduled for their quarterly team review and I was trying to come up what we should be paying her in recognition of her increasing contribution. Now, when I only had a few employees to consider, I’d just make up a number like a $3,000 raise, whatever I thought we could afford at the time. But with 12 employees it was clear I needed a more precise methodology for focusing the team and for sharing our growing profits. So what did I do?

I ran a search for “reward systems” and read a few pieces on profit sharing, gain sharing, and bonus systems and within about 10 minutes was, well lost. I realized that this wasn’t one of those topics on which I could become an instant expert and I needed to talk to a compensation consultant, ideally one that worked with small businesses like mine.

Now here’s the funny part:

I tried searching online for compensation consultants, but all I could come up with was ones that wanted to work with billion dollar companies, which mine isn’t…yet. Then I had a stroke of genius; I emailed the support desk of a small business in California called the Republic of Tea, asked them about their compensation strategies.

Amazingly enough I got a response, a suggestion of someone to talk to, that being Rebecca Johnson or ConsultRJ. Within a few days we were on the phone and here’s the essence of the solid advice she she gave me:

  1. Pay your employees a fair salary for their role and region of the country. There are a bunch of resources out there to give you guidance like and many more.
  2. Budget a 2-3% cost of living raise for employees.
  3. Then, based on your target goals, let your team know they can earn a share of your net profits. Essentially X percent of net profits times their base salary. If you want to fancy this formula up, you can offer the above plus 1.5 times X for employees with outstanding performance, that way you’re rewarding both team and individual performance
  4. At the end of year, review how the company did relative to your profit goals. Ifit hits them, pay out as indicated above. If the company under-performed, obviously you’re still going to pay employees a small bonus. If your company knocked it out of the park, you’ll pay more.

This all sounds like solid advice. It’s just one big challenge. Sit down and map your profit goals for the year and determine how much of your profits you want to share with your employees.

With the right small business compensation plan, and employees feeling like they have more of a stake in the outcome, you’ll continue to see your company grow. Which is what you want, right?

One Response to “How to Motivate Employees With Pay…”

  1. Lance Cook Says:

    I really appreciate all the great advice from Charlie (Not a relative) I am very busy running a mortgage company and now setting up a growing building company with a 72 lot subdivision. I am hiring a lot of people and I want and need his support, Thanks again, Lance

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