How much should I pay my employees?

As an employer, you always want the best talent. In order to acquire and keep that talent, you should pay your employees a wage that’s high enough so that it’s difficult for them to leave or go to a competitor for a nominal pay increase.

Start by checking out what the baseline salary for that position is in your area, and go from there. – This can be done with a basic Google search.

You should also try to create incentives around future growth in the business and how your employees play into that growth. Your team will appreciate being recognized as a valuable asset in the company, and work that much harder because the business’s success is in-turn their success.

The trick here is to be strategic in your incentives. Establishing the wrong incentive can induce the wrong behavior. As an example, utilizing incentives can backfire if employees falsify records to portray they have reached or surpassed certain goals. As a result people will lose their jobs and moral will decrease, all because they had the wrong incentives in place.

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Should I treat my leadership team differently from a compensation perspective?

The short answer is yes.

Your leadership team is just that – a team of leaders. As such, you should have their compensation structured in a way that is tied to specific individual and business goals. Set milestone goals for the business tied to key performance indicators, such as hitting a revenue mark or bringing on a defined number of new clients.  

BUT. The reality here is two-fold (yes and no). You want to pay people enough that compensation is not a reason for them to leave, but if you can’t do that you need to have a lower base salary and incentives tied to behavior to make up the difference. The key here is to establish the right incentives for your leadership team.

Consider this: a company that looks at operational efficiency among machinists will have an incentive around the production per hour/minute/day for those team members. Versus, your leadership team incentives surrounding cash flow increase and profitability. It’s quite simple: different incentives for different audiences.

You probably can’t put a profit incentive in place for a rank-and-file employee because they do not feel that they have any control over the profitability of the business. While their role may control the businesses workflow and client service metrics (CSM), bonus pay to bring in new business does not make sense for them. Fairly assign incentives to roles and results in which they have control.

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Should I give my leadership team equity?

Outright equity should almost never be on the table for your team. Giving equity creates minority partners, and minority partners can create unnecessary problems. Instead, if you are going to give your leadership team a stake in the business, consider giving phantom equity in lieu of equity.

Rather than giving away a portion of your business ownership like you would do with equity, you would instead tie that employee’s dollars to a goal.

Ex. You can declare that if your organization hits $10 million in sales in five years you will pay you out 5% of that increase value in phantom stock to that team member.

By the way, the reality is (even when they think they do) most employees don’t really want equity! When gifted equity, recipients then have to manage everything that goes with it – coordinating financials, accepting liability – when they really just want to see the dollars. Make explaining that difference part of the conversation to avoid unnecessary push back.

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Should I pay bonuses?

The concept of bonuses is a sticky one. Scheduled bonuses are a big no-no. Bonuses should be output-based, so you pay for performance that is tied to larger business goals.

Think about it this way, if you do give bonuses don’t do it arbitrarily. Instead tie bonuses to performance. You should have key performance indicators (KPI’s) tied to each role and measured for success – such as revenue per employee – and reward accordingly.   

Try to create incentives around future growth in the business and how your employees play into that growth. Your team will appreciate being recognized as a valuable asset in the company, and work that much harder because the business’s success is in-turn their success. The trick here is to be strategic in your incentives. Establishing the wrong incentive can induce the wrong behavior.

There isn’t a one-size fits all solution when it comes to your problems an entrepreneur. Enter your email address below so a Gerber team member can make sure you’re getting the appropriate information for your situation.

 

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