Main Street businesses are still facing the realities of this recession. Lower consumer and business spending is killing P&L statements. Many business owners, facing lower revenue, still remain straddled with high labor cots and other overhead.
Most business owners have decided to reduce their overall costs by laying-off employees. However, doing so can have additional adverse effect on the business. Added burdens to retained employees, reduced or canceled customer support or even reduced productivity as job stability fear rise – all of which can lead to further declines in revenue.
There are other methods of reducing costs while retaining the bulk of your employee base – particularly if your business needs to retain your best, most productive employees.
Pay-For-Performance, specifically for sales and project management employees, is a relatively new method of compensating your work staff. More and more businesses are asking their employees to take standard pay cuts in lue of potential higher bonuses based on performance. At first, it would seem that most employees would not even consider pay-for-performance compensation but once they understand that they can increase their overall pay (based on their efforts) most will jump aboard.
Plus, this gives the business several benefits including increase productivity, lower base salaries and a great way to retain its best employees in these scary and trying times. Further, instead of being saddled with fixed salary and wage costs, a large portion of these expenses can be tied directly to revenue; thus increasing employees’ pay when the business grows.
Now, as most of these pay-for-performance plans should be tailored for your business and operations, keep in mind that once in place, these plans are not set in stone. As your business encounters successes and setbacks, each plan can be re-evaluated (at least annually) to ensure that the business keeps the good and modifies the bad. Further, to help get your employees on board, get them involved from the very beginning and keep them in the loop as you move forward.
If you are contemplating cutting employees to cut costs and save needed business capital – think about pay-for-performance. This just may be the best of both worlds for your business and your employees as the market continues to seek a path to recovery.
Joseph Lizio holds a MBA in Finance and Entrepreneurship, is the founder of Business Money Today, has a strong commercial lending background and is regarded as an expert in business and finance.
