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Are Your Pay Plans “Pay Scams”

Written by: Gary Silverman

Article Overview: When was the last time you reviewed or changed your pay plans? If it was more than a year ago than now is the time to act, particularly because it is the end of the year and what better time to make a change than now? Most people are adverse to change, particularly when it comes to pay but given the rise in unemployment this is a good time to slide in a change coupled with a commitment that their job is secure and you shouldn’t have a problem getting a buy in.

Are Your Pay Plans “Pay Scams”

It is human nature to feel that when there is a change it means that they have to give something up. That isn’t always the case. You may have some people who are over paid and others who aren’t compensated enough. They know who they are and you will rarely get a complaint from the underpaid but you may be at risk of losing the highly productive underpaid members of your team.
Where do you begin? Look at the total compensation that you pay a particular category of employee; management, accounting, or sales for example. Determine whether you you are paying out too little or too much. Look at your revenue projections for 2009 and set a percentage payout benchmark for that department. Make a list of the employees who share in the compensation pool from the most productive to the least productive. Determine a fair pay level for the first person and last person on the list. Then fill in the blanks in the middle, stepping up accordingly. Write the new pay plan to pay out the amount assigned. Top producers are generally more money motivated and your plan may improve their results. The lowest paid will either shape up or ship out. Everyone will earn more if they produce more. You have accomplished three things. You have capped your compensation, motivated the best, and paid the others what they are worth. This type of pay plan acts as a remote control for motivation. You must, however, present it properly by explaining how everyone can “work” their plan to make more money.
During good times pay plans often pay out crazy money. This is a result of leaving these plans on the table too long. During slow periods some plans pay at the poverty level. If your plans include a base salary and commission you can adjust those factors to even out the peaks and valleys of your business. People will not work for a company if they can’t survive. Shift the allocation of pay back and forth between salary and commission until you have a plan that protects the employee on the low side and the company on the high side. Adjust the plan as market conditions change. You can make changes on the fly rather than wait for year end, as long as your employees understand the concept of your plan.

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