Almost any business owner or boss is faced with one or all of these challenges:
- Their employees are unmotivated
- They keep losing top talent to higher paying positions
- They can’t attract top talent because they don’t have the payroll for it
The solution (and yet another way to not lose employees) is to put a performance based bonus plan in place. So how does it work? Your employees would receive a competitive base salary, let’s say $60,000. In addition, you would put in place a performance based bonus plan which would accomplish several things:
- Reduce your fixed salary expense from the $70,000 (or higher) level that they are requesting if you offered them the standard compensation package.
- Align your employees’ interest with the company’s to grow their specific department’s revenue and increase their productivity.
- Increase responsiveness and client satisfaction levels as your employees would now have a vested interest in attracting referrals to the company.
- Foster a cooperative working environment with other departments as your employees will look to cross sell their services (i.e. organic and paid optimization or paid optimization and analytics).
There are many ways to skin this cat. For example, you could institute a program that looks at target revenue with their bonus as a % of salary:
Current SEO Revenue: $500,000
Target SEO Revenue for 2008: $750,000
Their bonus program would work as follows:
- Less than 80% of Target Bonus: $0
- 80% of Target Bonus: 5% of salary
- 90% of Target Bonus: 10% of salary
- 100% of Target Bonus: 15% of salary
- 110% of Target Bonus: 20% of salary
You can create a performance based salary program in many different ways. You just have to keep the basic theory in place: set your profit target and then develop a scale of bonus based on the results achieved.
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Not to be negative, but I’m fairly sure that Harvard’s research on this subject, described here – http://www.joelonsoftware.com/articles/fog0000000070.html – showed that in fact the opposite is true – incentive-based salaries have an overall negative effect on productivity and effectiveness.
No need to apologize, Rand, it’s a fair argument and a good article. However, the performance bonuses that they looked at didn’t affect their salary. It was an awards ceremony, a plaque, or some other horrible cheap tactic.
The way that this is setup gives both the employee and the business owner a safety net. The employee gets the good base salary, but has the opportunity to earn an additional 20% of that salary if they are able to grow the program. I think by offering them something they care about (more money), the program will be far more successful.
Rand – I read through the article again, and I keep debating myself with their points. I can understand the fear that you might lose important activity from your employees (like researching new tools, etc.) I can see how you might be playing with fire, but it seems like one of the better solutions to keeping or recruiting top talent.
As a business owner, what have you noticed?
I’m a born fan of commission based salary as well
That and working myself to death with side work…
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