Compensation - Straight Time or Commissions

Most companies pay their employees for hours on the job plus benefits and possible a holiday bonus. Each year as they become better at their job, they can get a raise. If business is busy, they can earn additional money by working overtime. Some companies offer special incentives to increase sales, i.e., flat bonus for each new customer. If business slows down, workers are carried while management tries to figure out how to increase sales so that there is sufficient revenue to make payroll. It is the workers responsibility to work and management’s responsibility to tell them what to work on.

Management is required to observe and judge each employee to make sure he or she is doing a complete days work. Sayings like a "Fair days work for a fair days pay" highlight the relationship between management and workers. If management plans well, has good communication skips and makes sure all resources have been lined up, i.e., trucks, fuel, tools your company gets solid sales return for each employee hour of work to pay for his/her compensation. This can create a we/them environment that results in lost productivity, high turnover, poor employee moral and STRESS, this is not a happy place to be. This is why many small companies choose not to grow by adding additional employees. They do not want the responsibility of having to oversee their work and the stress of making sure everything is working or you get to see you employees sitting around waiting for work or taking long, long, long meal breaks.

An alternative that helps minimize some of these problems is to change how you pay your employees. The idea is to make them part of the management team so that they have an active interest in making sure the company is run well. One method is to use a split compensation program instead of straight time.

This method of compensation is to have a fixed amount, say 50 to 70% of what you would normally pay a person and a commission based upon actual business completed. This is used extensively in areas where employee’s personal initiative can have a big effort upon the outcome. Sales position have traditionally used this method of compensation because there are few ways tell a sales person what to do to increase sales, most of the success of good sales comes from personal efforts.

This same method can work in the service industries. The details of the commission system varies by type of service you company provides, an example is the septic pumping business. In a septic pumping company, a driver may earn $9.00 per hour straight time, normally and completes five pumping per day. He is paid for eight hours and earns $72.00 for his efforts. If he were paid on a commission bases, he would get say $7.00 per hour or $56.00 and $4.00 for every completed pump job. This way when he completes five jobs her earns $56.00 + $20.00 or $76.00 for the days work. If by chance he is able to do complete eight jobs his gross would be $56.00 + $32.00= $88.00 or a 15.8% bonus for the days work and your company gets a 37.5% increase in sales.

This is a WIN for the employee and a Win for the company. There are many other benefits to a commission based compensation program then everyone getting more money, which is always a good thing.