Performance Based Compensation

[d***@sbcglobal.net]

Can anyone provide a sample plan or some guidance on setting up an
incentive-based compensation plan?

I am planning to hire a person to oversee all technical support and
installation services in our business. This person will be a
high-caliber individual and we plan to compensate accordingly. However,
we don't want to be out a large chunk of salary if this person does not
increase efficiency and improve profitability. On the other hand, we
want to provide a direct incentive to overacheive and provide
substantial reward for exceeding our expectations.

If the caliber of person we were hiring would typically make, say $75k,
we would like to provide a base salary of $60k, with performance-based
bonuses (probably quarterly) that would make a total compensation of
$80k if they acheived the target parameters. We would also like to
structure it so they had a chance to make up to, say $100k, by
substantially overacheiving.

I am struggling with what parameters to use for calculating the bonus.
Naturally, the ultimate goal is increased profit, and I could tie the
incentive to net profit of the company. The trouble here is that we are
a small company, and I don't want to disclose the whole P&L, which
would show how much I am taking out of the business and would easily
allow someone to figure out the pay of other employees.

A) Do you think a $75K individual would be excited by a plan like this?

B) Any suggestions on alternate incentive parameters, or ways to use
profit metrics without disclosing detail, would be most appreciated.

Thanks in advance,
JC

[Wayne Sallee]

I'm not a big fan of performance graded pay rates, unless
it is very simple and clear cut what the performance is
that is needed. If it is something simple like a
percentage of sales for a sales job, then fine, but if it
is something that requires a wide variety of performances,
then the employee tends to focus on just those
performances that makes him money, and neglect other areas
of the job.

Wayne Sallee
Wayne's Pets

Post by d***@sbcglobal.net
Can anyone provide a sample plan or some guidance on setting up an
incentive-based compensation plan?
I am planning to hire a person to oversee all technical support and
installation services in our business. This person will be a
high-caliber individual and we plan to compensate accordingly. However,
we don't want to be out a large chunk of salary if this person does not
increase efficiency and improve profitability. On the other hand, we
want to provide a direct incentive to overacheive and provide
substantial reward for exceeding our expectations.
If the caliber of person we were hiring would typically make, say $75k,
we would like to provide a base salary of $60k, with performance-based
bonuses (probably quarterly) that would make a total compensation of
$80k if they acheived the target parameters. We would also like to
structure it so they had a chance to make up to, say $100k, by
substantially overacheiving.
I am struggling with what parameters to use for calculating the bonus.
Naturally, the ultimate goal is increased profit, and I could tie the
incentive to net profit of the company. The trouble here is that we are
a small company, and I don't want to disclose the whole P&L, which
would show how much I am taking out of the business and would easily
allow someone to figure out the pay of other employees.
A) Do you think a $75K individual would be excited by a plan like this?
B) Any suggestions on alternate incentive parameters, or ways to use
profit metrics without disclosing detail, would be most appreciated.
Thanks in advance,
JC