The importance of compensation in a commitment of employees is a long fact. Despite this, many compensation plans fail at achieving the said goal, with complexity and unresponsiveness being the chiefly responsible factors. The article describes a compensation mechanism which is simple, transparent, and effective, and with little adjustment can be implemented within most of the start-ups.
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The central premise behind the approach is the alignment of the compensation scheme with the current objective of the organization. In other words, compensation should be adjusted as soon as the new objectives are determined, and the new performance indicators are isolated. The example described in the article outlines three stages – customer acquisition, customer retention, and scaling up the business.
During the initial stage, when the focus was on the rapid build-up of the customer base, the salespeople were paid for the recurring monthly payments while the claw-back was implemented on commissions to balance out the potential losses. Once a sufficient number of customers was acquired, the management turned to the reasons behind the high churn level. As soon as the data suggested its relation to selling practices, the compensation became dependent on the retention level, with the lowest-performing group of salespeople being penalized. Finally, once sustainable growth was prioritized, the data pointed to the influence of the length of a prepaid period on the loyalty of customers.
Thus, the third adjustment was implemented, which favored sales strategies resulting in longer prepaid terms. Each change was accompanied by appropriate monitoring which evaluated the purported success.
At first glance, such a scheme does not introduce anything new. Upon closer inspection, however, it reveals two characteristic features. First, it relies on thorough data processing rather than intuitive guess. Second, it decreases lag, that is, once new issues or objectives become visible, they immediately find reflection in compensation plans. Similarly, the delay is minimized in the actual outcome of the new plan: both benefits and shortcomings of salespeople’s actions immediately affect their paycheck. The suggested approach is valuable for small businesses for which time is an important issue. While its direct application is not recommended, with certain adjustments it can be used to improve the company’s performance and boost the productivity of staff members under similar conditions.