How to Grow Part 2: Compensation Motivation

There are a wide variety of compensation plans in the corporate world, but if you’re a startup which one is the best option? When you’re looking to grow your team, it can be overwhelming deciding how to compensate your future employees while taking the compensation thresholds of your current employees into consideration. But know this: when employees understand how their achievements are valued and rewarded accordingly, motivation and engagement improve. Keep these things in mind when planning compensation for 2015.

Typically a lump sum (year-end bonuses) are one tool that makes up total compensation. In fact, they made up 12.7% of payroll budgets last year. Year-end bonuses are more easily tailored to the specific job role compared to some other compensation rewards. While it’s easy for employers to lump the entirety of the bonus at one time – instead of a steady and consistent raise in base pay – how do employees feel about it?

Typically, employees are more receptive to the lump-sum bonus simply because the 1-3% raise doesn’t feel like much spread throughout the year. Bonuses tend to make employees feel more appreciated and subsequently, more engaged at work. When employees are recognized for good work – as positive reinforcement would dictate – they are more likely to continue that behavior. Consider a bonus for your employees if you are a lean startup and have year-end revenues or cash on hand. Remember that just like any compensation, your employees are required to report this on their taxes.

Startups don’t always have the necessary funding to facilitate the typical year-end bonus or even an increase in pay throughout the year. Don’t worry, that doesn’t mean you can’t reward employees financially for their exceptional work. As a small organization, you can offer stock incentives as an alternative to a direct cash bonus. Now, there are different options for stock incentive plans. Nonqualified, restricted, and performance shares are just a few examples.

At larger firms, stock incentives have become an increasingly popular means of motivation, albeit long-term compensation reward systems, for their employees. These organizations offer two types of stock rewards: 88% offer restricted stock and 64% offer stock options. Just because they are larger companies isn’t to say you can’t offer similar rewards for your small organization. You could translate that Wall Street stock into something more transparent for your company. Give employees room to gain emotional or professional “stock” in their work, their team, and their participation in the organization as a whole. Using ownership in the company (how you structure it) is a great way to keep senior level employees invested in the growth of the company and can be used as a recruiting tool when communicated properly.

Merit-based raises don’t have to be just money. That’s right… a raise doesn’t have to have a dollar symbol before it. Non-monetary benefits such as extra paid time off or even the coveted desk with a view of the skyline can instigate higher motivation depending upon the needs and wants of employees. While they don’t have to strictly consist of monetary rewards, organizations can offer a choice in a merit-based raise. If you have the financial wiggle room, give high-performing employees the option. Would you like X days extra PTO or X% raise for your outstanding work on last year’s project? Claire Bissot, former HR Consulting Manager at CBIZ Human Capital Services, said:

The use of incentive compensation is changing. Take a gander at the new scenery… what do you see? Stock options, vacation days, cash… Incentives like bonuses, stock incentives, and some non-traditional rewards all can be used as motivation. Whether you decide to use a year-end bonus system, a raise, or some extra vacation time, it’s important to recognize employee work with positive reinforcement if it is deserved.

While large organizations often have a traditional style incentive program, small businesses can participate in a reward system as well. Choosing the right compensation reward system for your organization can be an overwhelming endeavor. The implementation of that mechanism doesn’t have to be. Now start planning!