How Do You Address the Compensation Side of an Employee Development Plan? Four Points

Situation: A CEO has an employee who consistently performs above expectations. The employee has asked whether they could be rewarded for over-performance on customer retention and for gaining new business from existing customers. How can this be structured? How do you address the compensation side of an employee development plan?

Advice from the CEOs:

  • This is the type of employee that every CEO wants to see. Responding positively to the employee’s request is essential, and an opportunity to assure the employee’s loyalty and retention by the company.
  • One structure is bonus multipliers based on under or over performance. An example of the structure could be to assign and have the employee agree to a target for customer retention or new business acquisition from existing customers. Bonus is then impacted by their performance against this objective as follows:
    • Hit <85% of the target – no bonus;
    • Hit 85-100% of target – receive your standard bonus;
    • Hit 110% of target – get bonus times 10%
    • Hit 120% of target – get bonus times 20%
    • And so on.
  • This is just an example for the purpose of illustration. Variations on the original bonus plan can be negotiated with the employee, and adjusted over time to further encourage continued outstanding performance.
  • The multipliers do not necessarily have to be large, but are there to show that a certain level of performance is expected to receive this portion of the bonus. In addition, the employee can increase the bonus by overachieving their objectives.

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One thought on “How Do You Address the Compensation Side of an Employee Development Plan? Four Points”

  1. Paul Mailhot

    A Compensation Plan solution would be a base salary slightly lower than industry-median plus commission. Yearend bonuses could be added for exceptional achievements.
    Reaching target results must be challenging, achievable and easily measurable.
    A reasonable metric could be aggregate sales and a minimum number of active “accounts” in a period. Acquisition of new “accounts” should equal or exceed the loss of “accounts”.
    The new Plan could be individually optional but not reversible. Those who prefer to remain on the current Plan should be allowed to do so but could irreversibly opt for the new Plan later.
    Eventually there should be a single Compensation Plan.

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