Employee Compensation Plans
How you compensate your employees can make the difference of whether or not or how well you can whether a down turn in the economy. We all saw it hit us in 2008 when the economy took a turn for the worst here in the United States. We saw countless times that companies:
- Waited a long time to lay anyone off even though they couldn’t afford too
- They were paying wages that just didn’t fit with the new economy.
One of the things you can look at is how your employees are compensated. If you pay lower base salaries that you make up through a profit sharing plan, then if there is a down turn in the economy and the profits aren’t there, you get automatic cuts to your labor costs.
But if the economy is doing well, you will be sharing the wealth and sharing the profits of the company with the employees. By doing this you can reduce that minimum number of dollars that you need to bill each month just to breakeven. If you can reduce that then when they economy does go south you’ve got some cushion in there to maybe be able to whether the storm a little bit better.
The other place to look carefully is at your principle or owner compensation. This too is a place where there can be less salary and greater profit sharing, taking the money out as a dividend or distribution rather than a salary so that on a month-to-month basis when times are tight, your actual cost is not as high. When you do have the money, then you distribute it out. This is a great way to:
Most employees during this last down turn that we all went through, would’ve been happy to just have a job at the end of the day, even if it did pay a little less. And if they had low salaries with a high bonus or profit sharing, then the firm could have controlled costs without having to ask employees to take pay cuts.
In the interest of building your company to withstand a long-term effects of poor economies and to be around of decades, consider looking at your compensation plans to see if you can reduce the base but increase bonus and profit sharing.
The other thing that the bonus plan or profit sharing does is it outs the overall success of the company in the interests of the employees. If their projects are more profitable they get to share in that profit. So now it gives them the opportunity of an entrepreneurial spirit in working for you. It’s in their best interest to help the company succeed rather than just collect a paycheck.