In the past, the majority of organizations paid employees a set, pre-determined salary. However, this compensation strategy has become a bit outdated, as many are moving toward a more performance-based structure, to provide people with an incentive to keep up the good work.
If you’re thinking about implementing a new type of compensation structure at your company, consider the following three options:
Skill-Based Pay
This compensation strategy serves as an incentive for employees to learn new skills relevant to their jobs. Pay is increased as the person acquires additional skills, thus becoming more valuable to your organization. To properly implement this system, it’s important that employees are asked to learn new skills truly relevant to their jobs. For example, rewarding a financial salesperson for earning additional FINRA certifications would be an appropriate incentive.
Competency-Based Pay.
Using this type of pay structure, employees are compensated based on their level of performance. Positive aspects of this style include a lack of seniority, as everyone is on equal playing ground; an incentive to achieve, as the more work employees do, the more they earn; and promoting a culture of knowledge, as financial rewards motivate continuous learning. Possible disadvantages include the chance of perceived favoritism, subjectivity, and the inherent difficulty in distinguishing between productivity and competency.
Variable Compensation.
A variable compensation plan is often based on company success. Employees may receive payment in a variety of different methods, including bonuses, profit sharing, deferred compensation, and other rewards. The level of compensation offered is typically based on a person’s individual contributions to the company. Senior-level employees often receive a large portion of variable compensation in their salary package, as an incentive to achieve top results.
Choosing the optimal compensation plan can be a challenge, as what works well for one company, may not be the best option for another. It’s important to take the time to consider all aspects of each structure before deciding on the type that’s right for your business.
Have questions about the best compensation structure for your business? Contact us today! We’ll be happy to work with you to determine the optimal compensation plan for your company.
