Now here’s a subject that everyone is interested in: compensation! Whether you’re the owner, boss or the employee, how much you pay, or are paid, is very important. In this article I’d like to share some compensation philosophies and strategies.
Employee compensation packages are one of the main engines that drive your business. If your kitchen and bath firm is like most, it’s an expensive engine to maintain – probably your number one expense.
For small businesses in America, total people costs are between 50% and 60% of their total operating expenses. According to NKBA’s last Dealer Profit Report, average total payroll expenses were 56.4% of the total operating costs. What’s yours? Be sure to add in all related people costs: salary, commissions, bonuses, benefits, taxes, etc. (including the cost of paying the owners).
Payroll is more than simply an expense. How much you pay your employees and what factors you use to establish pay scales and award bonuses can profoundly affect the quality of your work force. Equally important, this can affect your ability to attract and retain productive, reliable employees.
The questions people keep asking me are:
- What pay structure do you recommend (salary, straight commission or a combination of both)?
- If commission, is it paid on sales, gross profit or both?
- How much should you pay a sales/design person (productivity has a lot to do with this)?
There is no one right answer to these questions, though there are some guidelines and perimeters that you can use.
LANGUAGE OF COMPENSATION
First, let’s go over the basic language of employee compensation.
- Compensation – All of the “rewards” employees receive in exchange for their work, including base pay, commissions, bonuses and other incentives.
- Base Wage and Salary – The salary or wage employees receive before deductions or other incentives.
- Incentives – Special rewards such as commissions, bonuses, spiffs, profit sharing, etc. that are offered in addition to base wage and salary.
- Benefits – Special “rewards” offered to employees in addition to base wages/salary and incentives, i.e. health insurance, stock options, pension plans, vacation, sick days, etc.
- Exempt Workers – Employees who receive salaries (those paid a flat weekly, bi-weekly or monthly wage as opposed to an hourly basis)…and who are ineligible – in most cases – for overtime pay.
- Non-exempt workers – Full-time and part-time workers who receive an hourly wage. The provisions of the “Fair Labor Standards Act” (FLSA) and comparable state/provincial laws – particularly with respect to minimum hourly wage and overtime pay – cover non-exempt employees. Be sure to check your state/province on the criteria that clarifies the difference between exempt and non-exempt employees. It varies from location to location.
- Commission – A percentage of a price or gross margin earned on the sale of products and/or services. A commission can be the total wages or can be combined with a salary or hourly wages.