Experts in Compensation Plan Design
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All tagged Goal Based Incentive
We’ve been working our way through the various ways you can calculate incentive pay and have covered quite a few so far. As a recap, here are the various methods and the articles you can reference to find the content on that method.
On the commission side of our graph (see the article from September 2023), we are moving toward using some sort of “goal” to affect payout, rather than simply paying a straight commission from the first dollar. One of the ways companies initially think of doing this is by deducting the salary or a “seat cost” from the commission calculation. This ensures that commissions are not paid until the employee as covered their costs to the organization, which is usually an approach that CFO’s like… a lot. And it can have it’s place in an organization, particularly when it is just starting up. However, it does have some downsides.
Developing compensation plans for an organization is a bit like cooking up a gourmet meal for a group of people with very particular tastes. Some people might like their meal spicier with more exotic ingredients; while others are strictly “meat and potatoes” folks who like to keep things simple and straight-forward.
What's wrong with the traditional, "highly variable, straight commission on margin" approach for paying your employees? Nothing...if every employee has the same opportunity, the same skills, the same training, and all your freight is from the spot market where each day is a new day and no one knows for sure what's coming their way.
