This week we’re going to talk about employee compensation plans. Before getting into it, I want you to know that many of the problems you may run into when having this conversation with employees likely originates from the hiring process. Still, developing comp plans can be tricky, often taking a few tries to get right. I’m going to clear up a few things in this episode to help you think about what success looks like in a compensation plan.

Why is figuring out how to pay people to challenging in the first place? I’ve seen the struggle begin when an employer assumes that employees work primarily for the paycheck. Think about your high-level employees. They’re probably not sitting around just waiting for a paycheck. They’re seeking out a challenge. Remember what you have to offer besides money.

You need to get role and results clarity before anything else. Once you have specific KRAs (key results areas) laid out, you can figure out what a position is actually worth to your company. Then, a compensation range that is appropriate for the role can be determined. Our rule of thumb is that an employee should be producing 4x the value they bring to the company.

Another best practice is to really know your candidate. What drives them? Where do they see themselves in a few years? What are their salary expectations? Also, remember that a bonus is just that: a bonus. It’s for going above and beyond. It’s not used for motivation.

Instead of paying an employee an amount at the top of your range right away, hold off so you can give them something to work towards. Finally, develop a compensation package that offers various perks—not just money. Like all things in business, building compensation a plan becomes much easier each time you do it.

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