How can I structure my pay and compensation program?

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Compensation may not be the sole determining factor in job acceptance and retention, but it is usually a high priority for most employees and candidates.

Approaching employee compensation with flexibility can help companies trying to balance the need to compete with budget and manpower restrictions. A pay and bonus program should offer employees incentive to perform. A competitive base-pay scale can attract top potential, and the right bonus program can help retain them. Your bonus program should incentivize your employees to meet a corporate objective, team achievement, individual accomplishment, or other goal important to your company.

What Corporate Objectives Work Best for Your Company?

Before choosing an objective for your bonus program, consider your workforce. The number and types of different roles in your business should impact your objectives.
If high turnover or specialization plays a role, competency-based and small-group incentives might be good options. These objectives encourage teamwork.
Merit-based incentive programs encourage individual effort. They are ideal for large sales teams and entrepreneurial employees who go out and develop leads to close sales.
For non-sales employees, fewer salary tiers, but a much greater pay range within each tier, allows managers to pay more for highly skilled new hires. Managers can also reward effort with individualized incentives.

An Example of an Incentive Plan: a S.M.A.R.T. One

Even with the difference between rewarding teams versus individuals, there are some basic pieces that every plan should share. One example of a bonus plan is a Square, Meaningful, Accessible, Reinforced and Tiered one.

Square: Possibly the most important element to any bonus plan is a fair and equitable scale. A bonus plan that seems to favor one group over another can cause division and reduce employee engagement and productivity.. Transparency helps minimize rivalry that otherwise could cause recipients to spend more time improving their bonus and less time on company goals and objectives.

Meaningful: Make sure your plan puts attainment in the hands of the employee. This makes the goal meaningful — but only if the amount is large enough to be motivating. Basing bonuses on total corporate sales will not give individual employees much incentive. They know they have little influence on the outcome.

Accessible: Keep your plan simple. If employees can't understand their compensation plan, they won't know how to best apply their skills. A complex plan may leave employees confused about priorities.

Reinforced: Offer frequent progress reports. When your work force sees their progress, they can pivot to meet goals quickly and strive for stretch goals.

Tiered: Offering different levels will help your top employees stay engaged throughout every bonus cycle. A single-level incentive program leaves those who have met the goal with no reason to continue pushing for added success.


Keep in mind that in addition to financial rewards, there are a number of non-financial rewards that a company can provide. The goal is to be aware of what motivates your employees and develop a program around those motivators.

Helpful Link:

How to Discuss Pay with Your Employees

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