Strategic compensation for small businesses

Running a small to medium enterprise can be a fun, yet challenging undertaking. What some SME owners don’t realise, however, is that attracting and retaining the right employees in order to excel, is beneficial to business’ success. While you may jump to think that recruitment is the only factor here, appropriately remunerating the talent hired is an equally worthwhile endeavour. It may sound complicated, but I’m here to show you that it is actually quite straightforward with strategic compensation, a tool used to align employees’ job performance with your company’s goals and objectives with the following steps.


1. Consider budget and other factors

It is advisable to decide your budget before designing your strategic compensation plan. Decide if pay must motivate performance and retain employees for longer duration. The key lies in ensuring that the pay you offer is fair and equitable, and that it will be perceived by employees that way too. Moreover, ensuring that your pay structure is compliant with country and provincial labour laws and that it can be explained with simplicity is crucial.


2. Choose from the following strategic compensation types

· Paying for performance: Employees are paid for accomplishing a goal. E.g. having a certain percentage as average hold time for customer service calls, or completing some big project, so better performance means better pay. The goals must be completely achievable, else this type will not work.

· Paying for staying: You can offer a one-time bonus at certain yearly marks, or a higher annual percent increase when employees reach certain anniversaries.

· Cafeteria type: This means that you ask employees what matters to them and remunerate on the basis thereof. I.e. would they like money for childcare, or would they rather get a few more vacation days each year? Do they prefer a cycle-to-work plan or a gym membership?


3. Identify the pay scale for the job

· Begin by deciding the highest amount you'd be willing to pay anyone. Ask yourself: How much more valuable will this person make my company? Your answer is the most you'd be willing to pay that person when it comes to their salary.

· Salespersons or business development employees e.g. bring in revenue, so you can just ask yourself if the sales they generate cover their salary. If your new sales candidate can bring in €5,000 in profits, then it might certainly be worth it to offer a €2,000 salary plus commissions. Administrative staff’s value isn't so much in the money they make but in the money they save. So, ask yourself what it would cost not to have them on board, and use the answer to justify their salary.

· The next step is to figure out the least you'll pay, and that's where the market comes in. Market rates set candidates' expectations. Either way, candidates will expect you to at least pay market rates unless you can offer good alternatives.


4. Choose from types of pay

Hourly pay: This is natural when the work is directly related to time, a store clerk e.g. Check country and provincial minimum wage requirements in that case.

Salary-based: Salaries are fixed, so no matter how much work an employee does, they'll get the same amount in their payslip each week.

Commission-based: Some jobs contribute to revenue directly, e.g. salespersons. To them, you can pay a commission based directly on the revenue generated. You can use this commission to motivate them to sell as much as possible, by basing their income on their sales volume.

Perks: You can also offer perks (vouchers, services etc) as a complementary source of income.

At the end of the day, you'll pay a combination of what the job is worth to you and what the market demands. Whichever type you choose, make sure that it your compensation is in line with your business type and goals, as well as employees’ needs. Remember, ensuring consistency and clear communication towards employees is the way to success!

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