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In our last blog, we began exploring what it might mean to flip the narrative about pay raises and incentive structures. There are benefits to rethinking our long-held routines of annual raises and moving toward an incentive structure instead.

Now let’s explore what that might look like in a practical sense. When creating an incentive structure, companies must think about the whole picture. This is not merely a side program that we tack on to our compensation, but a very important piece of the puzzle of how we pay employees. For small businesses wanting to make the shift, here are a few things to consider.

Know how you make your money

Most businesses might be quick to answer the question of how they make their money with sales, but making money is so much more than a contract or individual sale. Every employee of a business contributes to sales and contracts in some way. Most employers don’t spend much time analyzing the revenue metric for each position within the company. But it’s an important piece of data that can influence your hiring practices, help you hire strategically, and help you know how much each position should be paid.

Understand your organizational chart and operational flow

Understanding your organizational chart and operational flow is vital to the process of considering how your company makes money and how much each position contributes to profit. You need to understand everything that is required to lead up to a sale, from the admin team that supports the sales team to the employees creating the deliverables and products. All these pieces contribute to the revenue stream, and you need to know the margins for each position. In looking at an incentive structure, you will be pulling the incentives from the difference between what they are paid and the revenue the position creates.

Consider total compensation package

In looking at incentives and salary, keep in mind that compensation includes much more than a basic salary. All the benefits and perks you provide play into the total compensation package. While large corporations tend to calculate this number, often small companies overlook this number. Not only should you be calculating this, but also you should be communicating the value to your employees. If you offer employee assistance programs or other benefits, not all employees may know about them or understand the value they offer. This communication is a continual process to be sure they are taking full advantage of your offerings.

Ensure an equitable incentive structure

When creating an incentive structure, it’s important that it be equitable for all involved in the company. The rule of thumb here is to create the structure by looking at each position, not each person. As you get to know your numbers and your organizational flow better, you will understand how each position fits within your organization. The more you understand how revenue is created within your company, the easier it will be to be equitable in both your salaries and your incentive structures. It is important to note that different positions will be at different levels and have different incentives available to them. Not every position contributes equally to your business, and incentive structures will reflect this.

As you consider these different aspects of creating an incentive structure, we are here to help. We can assist in both analyzing your data and creating an incentive structure appropriate for your business. Contact the WhyHR team today to start the conversation.

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