Creating Results-Based Compensation for Employees

Creating Results-Based Compensation for Employees
John Hernandez
Written by John Hernandez
07-29-2021
5m
How-to / tutorials

Results-based compensation is important because it helps you improve your company but it also holds everyone accountable. The expectations are clear and everyone is responsible for them. There is little room for confusion.

We can learn a lot from Ken Blanchard’s The One Minute Manager. He and Spencer Johnson go through an effective managing strategy that’s based all on communication. When we state everything clearly and concisely, especially on paper, you communicate expectations better.

Once you can communicate efficiently, you can lay out specific results that you require in your company. Today, businesses can adopt principles to develop a results-based culture and compensation.

What is Results-Based Compensation?

This form of compensation is directly related to the value the employee provides. This might sound like a form of sales incentive, but it doesn’t necessarily mean that.

Employees have a set of expectations. Instead of tracking down what they do and how long it takes them, the focus is on what they bring to the table. Companies can develop incentives through promotions, bonuses, raises, competitions, and other perks to encourage them.

But more than compensation, results-based culture gives employees autonomy. They can make the best decisions based on their experience and skills because they are trusted for what they can provide the business.

Managers put the expectation of results on them and expect team members to meet them. This gives employees a sense of ownership and the ability to find creative solutions to meet their goals.

Employees enjoy this freedom and thrive in it. But it requires a healthy culture and groundwork to make it possible.

To provide incentives for results, it’s important to develop a system for results-based expectations. Together, we’ll go through how we can build it.

Define Your Metrics

The most common issue with implementing a results-based compensation program is not knowing where you want to go. If there isn’t a roadmap, then anywhere is the destination.

This doesn’t just limit your potential, but it also breeds confusion for both the manager and the team members. When both parties know what is expected, then the clarity makes results-based compensation possible.

First, define what result you want. It could be financial if the employee is in sales. It could be customer service ratings if they are handling disputes. Whether it is financial or another metric, it should be known to everyone. The more transparent the better.

When everyone is clear on what is expected, communication gets better and everyone works towards common goals.

Teach Financial Literacy

Even if the team member is not directly responsible for revenue, they should be well-versed on how the company runs, how profitability works, and what their role in the financial picture is.

When everyone knows how business finances work, and how it relates to their environment, each level of the company will adopt healthy financial habits for the organization.

This also helps communicate the results you expect. For example, a great customer service rating plus resolved cases mean happy customers, which turns into future sales. When the company emphasizes financial health for the longevity of the company, then everyone’s contribution fits together.

If a salesperson is making more sales but spending more to acquire the customers, she’s getting better results for total sales but the profitability may be less or worse than before. By developing lenses to interpret results, teams can better understand the big picture.

Give Employees Authority

Instead of delegating to a team member with roles, results-based culture is designed to be much more powerful. With clear terms, boundaries, and expectations, you can give away authority. That gives you the freedom to work on what is most essential in the company.

What does that mean? Let’s say you hire a social media manager. Once she is trained, you give her expectations, real metrics for results, and boundaries within the brand. She is ultimately responsible. She can now use her creativity to improve on the process and meet or exceed your goals.

Instead of checking up on her, wondering how many hours she spends working or if she is doing what is expected of her, the results will do the talking. It’s not an unhealthy pressure, it’s a fair communication line for clarity. She is now free to find creative solutions and make the program her own.

Delegating tasks is a lot of work. Results-based culture gives away authority, making it easier for everyone.

Regularly Review Expectations

We tend to forget, even if it’s on paper, what is expected from us and the people around us. That’s why it is important to make it normal to review those result-based expectations with the team.

Is the team member meeting them? Are the desired results practical? Are there any blind spots and missing resources to make it happen? These reviews are helpful.

They are not the traditional performance review. It is a time for leadership and team members to discuss how to improve the process and get the best results. It’s a team meeting. Since results are a priority, all parties want the same thing.

This is a great opportunity to present and discuss compensation or incentives based on results. Make them unique to the person if possible.

What are their needs and goals? Is it to get more experience? More time to spend with family and friends? More income? These are worthy motivators and developing a results-based compensation system that fulfills those desires will be effective.

Publicly Affirm Goals

While everyone knows their expectations for results, not everyone may know the big picture. Continue to communicate those expectations to everyone. The team should know what everyone’s role is, what is expected, and how it plays out in the grand vision of the company.

This is vital because you emphasize the importance of everyone’s responsibility. Team members respect each other and know how each member contributes to the company.

It also adds accountability. When everyone knows what is expected, there’s nowhere to hide. You don’t have to worry about time being spent wisely because team members are ultimately responsible for the time they put in to get the right results.

It’s a healthy ecosystem of a supportive and accountable team. By developing a habit to publicly affirm goals and metrics, you can expect a better focus with everyone on the team.

Celebrate Milestones

The more you encourage and praise your team for meeting results-based goals, the better you equip them to continue what they are doing. Everyone wants to be acknowledged for their hard work.

Make sure to praise people for their effort first. We want to feel appreciated and that we belong to a family. Emphasizing only our output can be dangerous for everyone’s health. Add value to team members and let them know that they matter and that they are cared for.

When someone meets a goal, publicly acknowledge it and celebrate it. This is a powerful way to encourage growth and emphasize that results matter.

Ways to Implement Results-Based Compensation

Now that you know how to develop the structure for results-based compensation, what are some ways you can implement it today? Every company should have a customized system for what they need, but there are some universal ideas we could all consider. Here is a list of ideas to get started.

  • Develop financial incentives for sales goals
  • Develop financial incentives for other metrics like ratings, deal closings, customer engagement et al.
  • Tangible gifts are remembered more, think of vacation packages, lifestyle gifts, and more instead of just financial
  • Reward high performers
  • Include special perks for teams that excel
  • Provide company-wide permanent perks to increase the health of workplace culture and communicate why it is possible (certain results continue to be met)
  • Throw surprise parties or meals when a goal is met
  • Give employees more freedom of their daily time and days off (if they are meeting results, then they should be incentivized to continue with these perks)
  • Consider transitioning to remote work to attract top talent and implement employee autonomy, which encourages employees to produce results and holds them accountable

As you might have noticed, there are a lot of creative approaches you can take beyond just a salary and bonus. Think of what is most needed for your team and what can help build morale, culture, and motivate improvement within the company.

You can implement these results-based compensation programs for great results.

Results-based compensation is a great way to get better results and give employees the power to thrive.

If done correctly, it’s great for everyone. Managers and owners can rest easy knowing that employees are motivated with clarity and incentives to get the job done. And employees can create the kind of workplace lifestyle they want with more control of their time and autonomy available to them to meet the goals expected.

This article should help you begin to create a foundation and actionable plan for results-based compensation. You can start implementing it today. When you do, contact us to let us know your experience. We would love to hear from you.

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