Tuesday, October 9, 2012

Pay For Performance

This Blogger CEO is a big believer in Pay For Performance.   First, base pay should be based on experience, education and other factors; what I call  "the package".   But then after that, various commission, incentive and bonus plans should be in place that reward both team and individual effort.  And, those plans should be in writing and as specific as possible.  

When I worked at Merrill Lynch years ago, we were often paid bonuses, however, there was no written plan, or basis for the payment.   One of the years I earned bonus, I was driving my boss, an Executive Vice President to the airport, when he told me I had earned $8,000 in bonus.   To this day, I don't know why I earned that particular amount.  At the time, my boss just said thanks for a job well done after telling me the amount.   That was it and this interaction was rather common the entire six years I worked at Merrill Lynch.   Paying a bonus should buy Good Will with an employee.   The way it was done when I worked at Merrill Lynch, years ago, bought none. 

As a result, when founding our company, I was determined to put specific commission, incentive and bonus plans in place to drive the work and results we wanted achieved in our company.   While all of this drives our Human Resource Department crazy and it is a lot more work, at least our employees know the basis for these payments.  There are no surprises. 

In only took me about 20 years to figure out that Sales People should be paid commission based on the profitability of the deals they bring in the door.   Well dah!.  Most companies pay Transactional employees  transactional incentives as the best way to achieve specific results.     It is not uncommon for other exempt employees to be on some sort of a bonus plan that is both based on team and individual effort.  

Compensation and Benefits practice is both a science and an art.   There is no perfect compensation plan, however, I am a big believer in rewarding individual performance, rather than just team effort.  Specific Pay For Performance is the key to company success. 

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