How to Tie Employee Compensation to Firm-Wide Returns

When you are administering employee reviews, the overall goal is to have happy employees.  Employees who are happy and engaged help raise productivity and profits throughout the company.  In this module, we will discuss how to tie your annual reviews to profits and productivity. 

Set Quarterly Revenue Target

One of the ways you can tie employee compensation to company-wide returns is to set a quarterly revenue target.  Setting a company target may sound intimidating, it’s not as daunting as one might think.  Here are some simple steps to set your quarterly revenue target:

• Decide your anticipated growth rate for the next year
• Identify your primary market segments (different types of consumers- Teenagers, Swedish population, etc.)
• Identify a plan on how to target each of your market segments
• Identify your employee time and resources needed to achieve your target for your various market segments
• Get company-wide commitment to meeting the set goals.

Set Employee Goal

Once you have identified your company’s quarterly goals, you will want to set goals for your employees.  These goals can be set for employees to meet quarterly.  When you are setting your employees’ goals, make sure the goals are reasonable.  Here are some ways to ensure you are setting appropriate goals for your employees.  

• Be specific about what you expect from the employees, and it should be easily measured by their supervisors.
• Employees should have milestones that assist in tracking the process.  
• The goal should be attainable.  Achievement should require effort, but not too much or too little effort.
• The goal should be relevant to the goals of the company.
• You should allow enough time for the goal, but not so much time that the goal becomes irrelevant.  

Conduct Quarterly Reviews

Quarterly reviews are a great way to make sure you are on track to completing your goals.  When conducting these reviews, the results need to be shared with your employees as well as upper management.  Everyone needs to be ‘in the know.’  Share with employees the current state of affairs of the company, it helps employees take more ownership.  You will also want to identify and share with employees any problems that are prohibiting the company from obtaining a goal.  Share with the employees the various solutions the company plans on implementing to solve the problem.  Ask employees their thoughts on the solutions, and if they have any other suggestions.  Lastly, discuss with employees other goals that may be coming in the future. 

Pay Out Quarterly

So you’ve set your company goals, set your employee goals, and conducted your quarterly reviews.  Now it’s time to pay out!  The incentive helps motivate people to do the best they can.  Yes, the satisfaction of achieving a goal is nice, but it helps to have a little motivation.  A little incentive pay-out quarterly is just enough to keep your employees moving towards achieving your company’s goals. 

Case Study

Roger has been working at Chick’s Chocolate Company for 3 years now.  Recently, the company hired new management, who is making a lot of exciting changes.  Nancy is one of those members on the new management team.  She is in charge of finding what markets their product is not doing well in and coming up with ways to improve sales in those markets.  She has decided that they need to focus more on women between the ages of 20-25 years of age.  She has come up with a goal, and a plan on how to achieve that goal.  Roger is very excited because one of the changes Nancy is making is that they are going to do quarterly reviews with pay-outs.  These new changes have really motivated Roger and his co-workers to work even harder than before.