Payment options for employees

5/26/2011

Traditionally, most business owners pay their employees a set amount, either through hourly rates or annual salaries. However, with the economy still on the recovery and small business lending proving difficult for some entrepreneurs, many company heads have been looking into different payment plans.

As the American Express OPEN Forum recently suggested, a pay-for-performance model may be a more effective way of incentivizing hard work without spending precious money on expensive bonuses. According to a recent survey conducted by human resources consultancy firm Aon Hewitt, nearly 12 percent of companies expect to adopt a variable pay system within the next year. OPEN Forum author Anita Campbell notes that this is the second highest number that Aon Hewitt has recorded in the past 35 years.

"Pay-for-performance has some obvious advantages for the small business owner. First, a good pay-for-performance plan will focus on the aspects of employee performance that increase sales and profits. As a result, there will be more money available to pay the employees for their performance. No money? No problem - you don't have to pay the employees that extra bonus," explains the source.

Implementing a pay-for-performance model

It's important that business owners think carefully before implementing pay-for-performance models. There may initially be some resistance - employees are unlikely willing to give up their base salaries and bonus packages for variable rates. However, some individuals - younger employees, experienced workers and men - tend to enjoy competitive pay-for-performance models.

The key is to work performance into a bonus payout. Rather than cutting employees' base salary, employers should consider using performance as a measurement for bonus pay, rather than experience or other benchmarks. Or, if individual performance is an issue, entrepreneurs could use overall team or company accomplishments as a way to determine payouts.

"While setting individual goals for each employee is more time-consuming, it can also be more motivating because employees can work toward the goals without having to rely on others," explains Campbell.

"Setting group goals for departments or teams can motivate teamwork, but can also backfire with employees blaming each other for failure to reach the goals or accusing others of not pulling their weight. You’ll have to decide what will work best for your company and the personalities involved," she added.

When deciding upon a new payment system, it's important that entrepreneurs work with people who are involved with these arrangements, such as attorneys or accountants. This will help them better evaluate if a new payment plan is viable for their business or if they could run into any legal trouble for rolling out a new incentive program.

Now is the time to create new payment models

While unemployment rates are still high in many areas of the country, many small business owners have begun to contemplate hiring more workers to compensate for increased workloads.

This is especially the case with the busy summer months coming, as more than one-fifth of companies plan to hire in both part-time and full-time capacities. The top positions that companies are looking to fill include office support, customer service, research, engineer and information technology.

Summer hiring is a crucial time for many businesses because these employees can often become full-time workers in the future. As CareerBuilder notes, many entrepreneurs treat summer positions as a three-month extended interview for prospects.

With this in mind, now seems like the perfect time to unveil new payment plans for existing employees. This will help iron out any potential wrinkles from systems before new hires start to flow in.