Hello, leader! It’s no secret that we’re in a tough business climate right now. You might be thinking about what changes you need to make internally. Often, as business owners recalibrate their companies and reset their cultures, what tends to follow are employee reoffers and new hires — which means restructured compensation plans.
Developing compensation plans can be tricky, and it’s a hotly debated and often misunderstood topic. But, as a business evolves, so should its employees and the manner in which they are compensated for their contributions to the company.
In this blog post, we’ll discuss:
- Changing your mindset about pay
- The role of key results areas in a compensation plan, and how to calculate them
- Best hiring practices to set expectations for roles
- How to draft a compensation plan that meets your business goals
2 mindset hurdles when determining pay
Maybe you’re ready to hire, or you’re thinking about retaining employees with a reoffer, but you have no idea what an appropriate rate is to give them. You’re not the only one wondering — we’re often asked questions like:
- “What’s the going rate for X?”
- “What do you pay your employees in Y role?”
- “When should I give my employees a bonus?”
Before you decide what to pay your employees, here are the two key mindset shifts you need to make.
1. You think your employees only work for a paycheck
Great employees are not just focused on how much they are compensated. If so, they would stay even if they didn’t get along with anyone in the company and you beat them.
Most high growth, level 10 employees aren’t sitting around looking for a paycheck — they’re seeking a challenge and growth as a human being.
2. You think an employee will only work for you if you pay the most
It’s not a sustainable retention strategy to continue paying employees more and more until the business has nothing left.
Instead, think about what makes you an employer that people want to work for — like the fact that you love the work you do and you have cultivated an ecosystem that’s a dream to grow within. Remember what you have to offer to someone who is worthy of working for your business.
5 steps to make the most of a compensation plan
Initiating a compensation conversation driven by the wrong assumptions can make the experience transactional instead of relational. Worst case scenario, we give the wrong impression to our candidate, overpay them and feel resentful about it — or give them the upper hand in the relationship.
Instead, here are five steps to ensure you get the most value out of your relationship with your employee when drafting their compensation plan.
1. Get clear on role and result expectations
It’s vital to do a deep dive into our numbers to understand how the position we’re hiring for will contribute to the bottom line of the business. Remember, leader, we hire people to make our business money, so it’s important to know the value of each key results area, or KRA.
For example, here’s a breakdown of a few of the KRAs for a practice manager in our Certified Aesthetic Practice Leader Fastrack Course:
- KRA example with a focus on numerical growth:
- Increase company gross revenue by 20% year-over-year
- Average of $35,000 per month increase over 2022
- Goal: Retail sales 10% of gross monthly service sales
- Achieve Botox rebook rate of X%
- Convert neurotoxin patients to filler patients at X rate
- Increase Botox patients who also receive Diamond Glow to 20%
- Increase Diamond Glow patients who purchase Skinmedica products to 50%
- Patients who receive Diamond Glow increase the average times per year to three
- Achieve 60 five-star Google reviews per year (30 every six months)
- Three new Skinmedica autoship clients per month
- KRA example with a focus on objectives:
- Completes tasks assigned to job description and daily office functioning
- Lives out and adheres to company values
- Leads office communication and coordinates front and back office activities
- Reduces operational costs looking for cost saving measures monthly
- Meets Open House revenue goals
- Completes employee handbook within in 30 days of employment
- Helps facilitate monthly staff trainings as appropriate for team members — will work with owner on this (group or individual)
Both examples are specific and measurable. Our rule of thumb is that an employee should be producing an average of four times the value they bring to the company, to generate enough profit independently to pay for the next employee.
This also emphasizes why focusing on going rates doesn’t work. Every business is at its own stage of development and not every business can afford every employee.
2. Get to know your candidate
What are their proudest accomplishments? Where do they see themselves in a few years? Does your company have a pathway to help them get there? What are their salary expectations?
One of the best hiring practices is to either meet that number or show them a pathway to get there that is in alignment with their goals and yours. Paying them less than they feel they are worth will only create resentment.
3. The “extras” should be extra
A bonus is a bonus. I’m not advocating against bonuses, but offering bonuses, revenue share, equity, and more are not strategies to motivate employees.
These are incentives for going above and beyond, or strategies to invest in strengthening your partnership with that employee and the business. The objectives of a role should be met within the KRAs that are assigned to the role, independent of a bonus or commission incentive.
4. Slow and steady hiring wins the race
When we wait too long to hire, we start doing all kinds of crazy things. We might start skipping steps in the hiring process, ignoring red flags, making excuses, and overpaying employees because we don’t have the capacity to grow without them.
Rather than jumping to pay the highest range of your budget, one of the best best hiring practices is to give an employee something to work toward. Retaining employees starts with providing and rewarding upward growth and mobility. Remember, you can’t go backward once you’ve set a compensation baseline, but your employee will be looking to advance upward.
5. Develop your compensation plan into a compensation package
Include perks and offers in your package that comprise of a mix of the four basic components of compensation: base pay, wage add-ons, incentives, and benefits. Divide funds among each of these components, and highlight other incentives like training, education, mentorship, conferences, aesthetic treatments, or paid parking.
Packages help the employee visualize the cumulative cost to the company for their employment and it helps differentiate your offer versus an hourly pay. Similar to the idea of advertising an aesthetic procedure, you want to bundle your offer and make it proprietary to you.
Strategize for growth
Learning how to build a compensation package becomes easier once you’ve done it. Hiring additional team members for existing roles that you’ve already done the work to understand the KRAs and expectations will save you time in the future.
Gain invaluable support implementing these strategies into your business with our team. Book a discovery call with us now and let’s uplevel your leadership journey!