The new rules in compensation

We know that there has not been a job market like this in years. The old rules don’t apply. Here are three perspectives reported in the August 2009 edition of Inc. Magazine with the same goal: a work force lean and flexible enough so that when the economy does begin to rebound the company will be in a position to pounce.

Reduce rates of pay.

A review of a work process and work group showed they were paying at a rate above the industry average, technology had automated important parts of the job and there is a large inflow of unsolicited resumes from experienced workers. You know a pay cut no longer seems unreasonable. The implementation of a pay reduction is the difficult part especially when your staff are located all across the country. Make it very clear why you need to take the action. Let the staff know you will be on standby for feedback and questions. Make it clear that the cuts are permanent.

Implement a tiered commission plan.

Customer discounts can play havoc with the bottom line when customers begin to expect them and salespeople earn a portion of their compensation as a commission on signed contracts. In difficult times the sales staff lose very little when they discount the customer price. The answer is a tiered commission structure. Salespeople earn a bigger commission the less they discount the price. For example when a deal closes at the list price there is an earned commission of up to 8% if the price is over $50,000. But if the price is discounted 10%, the commission would drop to 3%. The system creates incentives to discourage discounts and align interests of salespeople and the company.

Hire the right people.

The lead partner had grown concerned that his junior partner wasn’t the right person to manage the company as it entered the next phase of growth. A resume stood out from the many that had flooded in. The person had all the accomplishments that were needed and was willing to accept the base salary of the currents second in command. After careful thought the second in command was asked to step aside and began to negotiate the terms of the exit. The new man was taken on the road for meetings with employees at sites of six projects in nine states to explain the move. The change went so smoothly that the CEO began looking for other places that might benefit from new blood. He decided to upgrade all B level players to A level players. The company quickly found more seasoned candidates who were willing to take the positions for a smaller salary but more upside if they succeeded. “ When we replace the B players , it actually elevates morale. They are not dragging down the average anymore.”