Employees and employers often focus their attention primarily on variable pay, but it’s vital to consider the entire compensation plan. These tips help you craft a balanced compensation strategy.
As with all aspects of business, success with each employee’s compensation plan comes from balancing each of the leading compensation package features: insurance, time off, base pay, 401(k) plus matching, and, of course, variable compensation.
If you’re currently rethinking your overall compensation structure, we have some bad news and some good news for you:
- The bad news: Crafting the ideal compensation package for each employee requires effort. Like all business matters, your balance will be unique to your company’s structure, culture, industry, and each employee’s roles and preferences.
- The good news: After 20+ years of experience in helping clients execute a wide range of variable comp setups, we’ve identified a few smart approaches. Our expertise in this area gives us the confidence to share these strategies with you in this article.
Ready to save time? Use the following ideas as a starting point when creating your new compensation strategy.
- If your sales cycle is long, use a high base/low variable comp structure.
Perhaps your sales cycle is 9-12 months or more. This suggests a more expensive product and a bigger potential commission. But don’t let yourself or your sales team be dazzled by dollar signs down the road. In the meantime, your employee has to eat, pay their mortgage, and buy school supplies for the kids.
With a higher base pay and lower variable pay setup, your salesperson can enjoy life and also look forward to frequent, highly motivational income boosts – a winning strategy for happiness and performance.
- If your employee must cultivate long-term sales relationships and sell new deals, split variable pay and base pay 50/50.
We’ve talked before about how variable pay should encourage the right long-term behavior from your staff. Account Executives are a great example of this because their job duties are equally divided between finding new clients and maintaining client relationships. For them, a 50/50 base pay and variable comp split encourages both activities equally.
In truth, a 50/50 split is often the sweet spot for salespeople since it combines stability with considerable rewards as part of a balanced overall compensation plan. But, again, carefully consider your industry, culture, and each staff member before defaulting to a 50/50 split for anyone.
- If your employee’s only task is to sell as much as possible, base their pay mostly on commissions.
If your industry, sales model, or corporate structure separates sales from customer relationship tasks, give your salespeople all the incentive they need to sell, sell, sell: weight their pay heavily in favor of commissions.
In this case, their substantial variable pay, combined with the other key pillars of a competitive compensation package, will motivate them to close many more deals.
Keep this in mind: It’s important to offer your employees flexibility in choosing their preferred variable compensation structure. This empowers them to align their compensation with their current financial risk-tolerance levels or career development plans.
Ready to Finalize Your Compensation Plan Strategy? We Can Help.
Variable comp software like Commission Plan for Microsoft Dynamics GP makes it easy for you to implement as many variable pay structures as you like, custom-tailored to each employee’s role, duties, and preferences. It also makes it easy for you to calculate and process commissions in a jiffy.
But that’s only part of the benefits of working with an expert solution and expert team.
For us, we see that our clients also deeply appreciate being able to tap into our 20+ years of experience handling variable compensation calculation details. If you’re interested in leveraging our expertise to help you develop and implement your company’s perfect employee compensation balance, we encourage you to get in touch.
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Since 2002, companies across every sector have relied on EthoTech for the right tool for tracking, calculating, and paying variable compensation. We provide solutions, integration, and support that is focused solely on integrated variable compensation software for Microsoft Dynamics GP. It’s all we do, and we do it better than anyone. Contact EthoTech to learn more.