Pay for Value

Here's a crazy idea: Pay everyone in your organization based on what they contribute to your bottom line.

Before you call the fellows with the straitjacket or start gathering torches, slow down for a moment and really think about this. I grant you that it will take a lot of time and thought up front, but there are some important payoffs involved that may work for your business, including having a compensation system that is fair, equitable, and transparent.

When you hire someone, how do you currently determine what to pay them? Do you fall back on the age-old method of looking to see the median wage for that role and experience level, then come up with a range slightly above or below it? Why? How does what 'the average' is have anything to do with that role's value to your company? What if 'the' average is wrong, or comes from companies that are much larger or smaller than yours? Doesn't this seem awfully arbitrary for something as important as someone's paycheck - something that's probably your single greatest business cost?

Maybe you look at what the prospective employee makes in their current position, or average the highest and lowest wages from their last few jobs. Again, what does any of that have to do with your organization, their role within it, and your needs?

Nothing.

Salespeople are easy. How much did they sell? Pay them a percentage of that. Piece workers, too - how many gimcracks have they made today? Where the real work comes in is looking at every other role within your organization the same way.

Do you employ an accountant? How much money do they collect for your organization? How much do they save? Don't you think they'd be incentivized by getting a little something extra based on that?

How about your marketing department? Did their latest campaign increase sales? By how much? Do you think they would work harder or longer if they had skin in that game?

IT, HR, Customer Service... everyone has value based on revenue they create or money they save. Especially if you are just starting out, and can't afford to pay 'the average', you can build loyalty and ownership by paying people for going above and beyond the bare minimum. And I don't mean some kind of hokey award or slap on the back - I mean a culture where such things are measured and comped on a daily basis.

What's wrong with everyone knowing what everyone else makes? If the goals and their incentives are clear, nothing. How can you complain about what you're paid if you have the means and the incentive to do better? You might, but no one else will listen, and you won't last long. Everyone will be too busy raising their own pay.

And if they are doing what needs to be done to justify that pay, imagine how much faster your organization will grow. Do you think your employees will tell their hard-working friends what a great place your organization is? Especially if you give them an incentive to help you find great employees?

"Yes," I hear you say, "but what if they decide to work somewhere else that will just pay them more?" Folks, there is always somewhere else that will pay your employees more; that's how free enterprise works. You have to be able to show the value of your organization and its incentives in a way that makes sense to prospective employees. Do you really want someone who will leave the moment they're offered more money, or do you want employees who believe in bettering their condition by having control over their own value?

Just because you do something the way that you'e always done it doesn't make it right. In a world of constant competition, you have to question everything you do, re-examine it, and not be afraid to face change if it doesn't make sense any more.

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