One of the areas entrepreneurs always are trying to improve is the way in which they compensate their people. The goal is often to align compensation to incentivize behaviors that grow and improve the startup. Often this is done through variable compensation.
For instance, sales people are often commission based so that the salespeople that do the best get paid the most. And sales people make money when the business makes money. One entrepreneur today said, “Commissions are as much about telling salespeople to leave as they are about telling them to stay”, meaning if someone does not do a good job they will not make commissions and will be incentivized to leave.
Some companies form structured bonus plans that pay out to the employees as the business hits various targets for revenue or profitability. One entrepreneur today said that their company always looks for people that focus on what it would take to hit the ceiling of their compensation bracket than what it would take to barely make the floor.
Some entrepreneurs do not do any bonuses. These are those that do not believe bonuses actually motivate behavior. Rather, if there is additional money to spend, these would just prefer to pay higher salaries.
Some entrepreneurs like to provide incentives in non cash forms, like gifts, trips, or other perks.
Each startup has to craft its own compensation structure and there are many different options. It is an interesting process to search for what is right for your startup.
What are your thoughts on variable compensation?
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