Performance-Based Compensation

Performance-based compensation is a pay structure where a significant portion of an employee's earnings is tied directly to their results. This is a powerful tool for attracting, motivating, and rewarding superstars.

Key Principles

• Reward for Results, Not Activity: Compensation should be based on what an employee produces, not just the hours they work.
• High Earning Potential: The compensation plan should offer the potential for very high earnings for top performers.
• Low Base Salary: A low base salary with high commission or bonus potential will attract confident, results-oriented individuals and weed out those who are looking for a comfortable, secure job.
• Attracts Superstars: Superstars are confident in their ability to produce results and are attracted to the high earning potential of a performance-based plan.

Implementation

• Clear and Simple: The compensation plan should be easy to understand and track.
• Aligned with Company Goals: The incentives should be aligned with the company's overall goals.
• Recruiting Document: Create a "recruiting document" that clearly illustrates the earning potential for a top performer over several years.

Performance-based compensation is a key component of a high-performance culture. It is particularly effective for sales roles, but it can be adapted for any position where performance can be measured. See Straight Commission Sales Team.