Compensation Plans - Dave Ramsey - Entreleadership

Lessons In Designing Great Compensation Plans by Dave Ramsey in EntreLeadership

CategoriesEmployee Management, Entrepreneurship42 views

Jesus said, “Your treasure is where your heart is.” What you spend money on says what is important to you. A company’s compensation system is a clear reflection of its corporate values and culture.

If you value your team, they will know it in a lot of ways, and one of the ways is that they’ll be paid and paid well. Recognition, unity, loyalty, and communication all start to have muted effects and even appear hypocritical if they aren’t combined with generous pay.

I love incentives that allow people to share in the win. If you work on my team and get up, leave the cave, kill something, and drag it in, I will share it with you.

Be Intentional

Be intentional about what you value. Compensation plans are like recognition: be careful to reward the activities you want duplicated. There are many ways to pay people. Take a look at a few of them and see how you can use these different methods to pay your team.

Salary

Most common method of compensation.

Profit Sharing

Sharing your profits is a great way to say thank you or “we appreciate you.”

Commission

Commission is easy because it is all about incentive. There are different types of commission, straight commission, salary plus and draw plus.

Profit and Loss Bonus

The profit and loss bonus plan is the scariest and most ingenious compensation plan we use. This plan is for EntreLeaders who run a major department or division for us. We set up each major area with its own P & L. The VP or EVP of that area is running their own company within our company. They receive a lousy salary and a percentage of the net profits paid the fifteenth of the month following the month being calculated. So they will get their percentage of net check for March on April 15th. Every single person on this plan is making more money than they have ever made in their lives.

Vesting

The last type of comp plan that we invented is for key leaders who don’t run a P&L department. I want my CFO, my COO, and some of the key leaders to participate in the ups and downs of our revenues, and for that matter to have a large portion of their great incomes be based on business performance metrics.

This vesting gives them their salary plus an undisclosed percentage of gross revenues for the whole company or just from their division. We are very clear with them that this obligation is limited to profitability and subject to change as we need to make the numbers work.

Changing Compensation

Raises are easy and fun to give. Always give raises with a praise sandwich. Praise the person and their actions, give the raise, and then praise the person. Always involve all leaders around the person so they know the raise is unanimous.

Benefits

Most small businesses don’t have the cash to provide much in the way of benefits like the big companies do, still you should consider providing the benefits your profits make possible.

Health Insurance

Disability Insurance

Retirement Accounts

Cool and Creative

Do weird things for your team that promote things you value. We pay for warehouse club membership cards and gym memberships. We got a great deal with an online legal website, so we furnish a free will for every team member. We did the same thing with ID theft protection, so we furnish it free. We rent out the local movie theater for private showings just for our team and their families every so often.

We started organizing the occasional company-wide potluck lunch during the workweek. The relationship-building created such synergies that we started catering a free lunch once a month. Every month we announce birthdays in staff meeting and have cake and ice cream afterward. We buy season tickets to our local NFL and NHL teams and give them away in a drawing every week.

We do a lot of really cool stuff, but when we started we didn’t do anything; we didn’t have the money. We had to get creative to say thanks, and as profits increased we allocated a percentage to human resources programs that we constantly try to dream up.

Education

Sometimes you pay for education and they leave with your training, but the alternative is to not pay for education and have them stay, and stay dumb. If your organization wants to place a premium on personal growth and knowledge, then put your money where your mouth is.

HR Fund

We allocate a percentage of profits to reinvest into the team. This fund pays for education, retirement benefits, and things like marriage counseling that I mentioned earlier. We use this fund to send flowers to funerals or buy airline tickets for family emergencies. We have an HR fund and a profit-sharing fund to invest in and love on our team that are both calculated as a percentage of profits. This is how you put your treasure where your heart is.

Conclusion

Develop a generous spirit toward your team in general. Not a spirit that tolerates or overpays underperforming people, but be generous to the people who cause you to win. Realize your team is your secret weapon. Bad companies become so worried about Q1 profit that they squeeze their secret weapon and kill the culture that brings profit. When in doubt, be generous. You will live with fewer regrets and you will profit more by attracting and keeping extremely talented and passionate people.

For more on growing your relationship with your employees, here’s Dave Ramsey’s advice on winning at hiring and keeping a loyal crew.

 

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