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White PaPerTeam-Based Pay

Revised June 2011

By Neil DucoffFounder/CEO

Strategies

[email protected]

Team-Based Pay White Paper | Copyright © 2011 | 800.417.4848 | strategies.com

Team-Based Pay For a better way to do business

• Consistentbottom-lineprofits.• Apayprogramthatmakessense.• Gettingpaidasanowner,notjustanemployee.• Clientsloyaltothebusiness–nottoanindividual.• Ateamculturethatisfueledbygrowth.• Bulletproofsystems.

It’stimeforthesestatementstobethestandardinthepro-fessionalbeautyindustry.Areyouonboard?Jointherevolution.

Team-basedpayalwayssparksalivelydiscussionbetweendiehardbelieversanddiehardcommissionadvocates.Butinrecentyears,agradualyetpowerfulshiftincompensationistakingplacethroughouttheindustry.Ownersandmanagersaresearchingforwaystoincentivizeandrewardamultitudeofbehaviorsthatcontributetobusinessgrowth–behaviorsthatreachfarbeyondsales.

Inoneveryimportantway,acompensationsystemfunc-tionsexactlylikeanyotherbusinesssystem:Itwillyieldtheresultsyouwant,ifyoustructureyoursysteminawaythatenablesittodeliverthem.Theproblemformanyown-ersisthattheyexpectanddesireresultsthattheirchosenmethodofcompensationsimplycannotdeliver.Somebusi-nessleaderswhoespouseacommissionsystemswearbyitand,indeed,itdoesseemtoworkincertaincircumstances.Inapurelysales-drivenenvironment,commissioniscapableofdeliveringthedesiredresult:increasedsales.Butifyouwantdifferentresults,commissionisn’tquitesospot-on.Youneedsomethingelse.

What is team-based pay?

Thecollectivebehaviorofabusinessdefinesitsoperatingculture.Themethodofcompensationisatthecoreofabusi-ness’sculture.

If you want team, you have to “team” pay.

There’snothingmorestimulatingtobusinessleadersthanadebateoverwhichcompensationsystemisbestfortheircompany.Toooften,thereislittleornodebateoncompen-sationsystemdesignbecausemanyindustrieshavesolidlyandhistoricallyentrenchedpaypractices–somuchso,thattoquestiontheirvaliditytodaywouldbeviewedassacrilege.Punditssay,“Thisisthewaywepay,andit’sthewayit’salwaysbeendone.”Evenifthereisawillingnesstoexplore

newideas,theresultisoftenjustanotherspinontheoldsys-tem.Unfortunately,allyougetwhenyoumodifyanoldpayprogramisamodifiedoldpayprogram.Simplyput,thereisalimittohowmuchhorsepoweranoldenginecanproduce,nomatterhowsophisticatedthemodifications.Thethinkingmustgodeeperandwider.Itmustbeginwithacleanslateandclearobjectives.

Today’srelentlesslychangingbusinessclimatedemandsacompensationsystemthatmeetsthefollowingfivenon-negotiablecriteria:

1. Combinedwithfiscalresponsibility,itmustfitthefinancialrealityofthebusiness–todayandintotheforeseeablefuture.

2. Itmustbecontrollable,notalarge“fixedpercentage”ofrevenue.

3. Itmustencourageandrewardtherightindividualbehaviors,andperformanceconsistentwiththevisionandcultureofthebusiness.

4. Itmustgiveclearguidelinesandpathwaysforindivid-ualgrowth.

5. Itmustinspireandrewardteamwork,teamculture,andattainmentofthebusiness’soverallperformanceandrevenuegoals.

Commission fails to qualify.

Commission-basedpayprogramsareamongthemostcom-monlyusedintheattempttoinspirerevenuegrowth.Andwhynot?It’ssafe.Ifsalesaredown,payrollisdown.Ifemployeeswanttoearn,theymustproduce.Whatcouldbesimpler?

Problemis,commission’sverysimplicityisitsAchilles’heel.Itleavestoomanyproductivitydecisionsinthehandsoftheemployee.Becauseit’sbasedonapercentageofsales,commissionoffersrewardsevenwhenperformanceandbehaviorissuespersist.Commissionisindividual-basedand,bydesign,feedsthe“mycustomer;it’sallaboutme”think-ingthatcontaminatesteamcultures.Fightingover“whoownsthecustomer,”especiallywhentopproducersleave,isacommonoccurrenceincommission-basedbusinesses.Andcommissionlocksthebusiness’spayrollintoafixedpercentageofrevenue–makingitimpossibleforthebusi-nesstoadjusttoconstantlyescalatingoperatingcosts.Totopitoff,anyownerofacommission-basedbusinessknows

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thatadjustingorloweringcommissionsistheequivalentofopeningPandora’sbox.

Team-based pay in its simplest terms

Team-basedpayisanhourlyand/orsalaryprogram,whichtiesateambonustotheachievementofcriticalnumbers(e.g.,revenue,grossmargin,clientretention,productivity,netprofit).Individualgrowthistiedtooverallperformance–notjusttheemployee’sabilitytogeneraterevenue.Ateam-basedpaysystemisdesignedtorewardtherightbehaviorsandperformance–thosethatsupportthebusiness’sgoalsandculture.

Onpage7,wetalkaboutbroadbands,whicharedesignedtoofferemployeesguidelinesforgrowthinkeyareas,suchasperformancegoals,technical-skilldevelopment,andnon-technical-skilldevelopment.Withinthebroadbandsaretheculturalbehaviorsthatdriveteamwork.

There’s going to be a culture shift

Ifyouchangeyourpaysystem,especiallytoateam-basedsystem,yourbusinesswillgothroughacultureshift,likeitornot.Thewiderthegapbetweenthefivenon-negotiablecriteriaandyourcurrentprogram,thegreatertheshiftwillbe.Themostsignificantshiftwilloccurifyou’removingfromcommissiontoteam-basedpay.Remember,com-missionencouragesan“I/me”culture.Team-basedpayencouragesa“we/us/theteam/thecustomer/thecompany”culture.Theshiftwillbedynamic.Bestofall,yourcustom-erswillnoticethechange,andidentifyitaspositive.

The leadership factor

Paysystemsarefoundationsthatgreatcompaniesarebuiltupon,butapaysystemalonedoesnotchangebehav-ior,performanceorculture.Leadershipmuststepuptotheplate.Communication,goals,standards,skilldevelop-ment,financialaccountability,opennessandintegrityarenon-negotiableelementsofasuccessfulpayconversion.Businessesthatfailatpayconversionsandcultureshiftsaremanagedbyleaderswhopickandchoosewhichelementstheywant.Theycompromisethesystemfromthebeginning.Theyfallasleep,andthenwonderwhyitdidn’twork.Theysinkintotheblamegame.Leadersneedtobetenacious.Nocompromise.

Team-basedpayisanexcitingwaytogrowacompany.

Changegetsthebusinessjuicesflowing.Therewardatalllevelsisextraordinary.

Managing Overall Performance and Team-Based PayIt takes new management skills, detailed planning and team focus

You’vebeenreadingandhearingaboutthenewpayprograms.Allthisstuffabout“payforperformance,”skill-basedpay,team-basedpay,open-bookmanagementandadvancedlevelsofteamworkhasfinallypiquedyourinter-est.Somuchsothatyou’retrulyconsideringimplementingsuchaprogram.Thesignsthatit’stimeforyourbusinesstomakemajorchangesarepresent:shrinkingprofits,aless-than-motivatedstaff,nocleargrowthdirection,marginalclientretentionandproductivityperformance.Youknowthetimehascomeforchange,newthinkingandafreshbeginning.

Maybeyoualreadyhavethenewpayprograminplace,butarefrustratedthatnottoomuchhasreallychanged.You’restillexperiencingthesamebehaviorsandless-than-satisfy-ingresultsyouweregettingwiththeoldsystem.Youmaybesayingtoyourself,“Imusthavedonesomethingwrong,”or“Thisnewpayprogramjustdoesn’tworkinmybusi-ness.”Thisproblemisnotuncommon,andalmostalwaysboilsdowntoonesimplefact:Youchangedthebusiness’spayprogram–butnotitsbehaviorsandsystems.Thebusi-ness’scultureandthinkingarestill“oncommission.”

Understanding the differences

Commissionpay,withitsgraduatedscalesandmulti-levelpricing,directlyconflictswiththenewpayprograminthefollowingthreeways:

1. Commission is driven entirely by individual sales dol-lars, not overall individual performance.

Forexample:OnecompanythatcontractedStrategiestoreengineeritspayprogramandsystemswaspaying60%commissionandfallingdeeperintodebt.Payrollwasoutofcontrol.Thedecisionwasmadetoimplementanewpro-gram,basedonoverallindividualandteamperformance.

Tocalculateeachemployee’sstartingpay,welookedattheirpreviousyear’searnings,theirgrosspayforthelastthreetofourmonths,andtheiroverallindividualperformance.Untilthen,thesalonhadonlytrackedrequestrates–notfirst-time


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clientretention.(Thesalonscoredadisturbing36%initsfirstretentionreport.Only58ofthe158first-timeclientsreturned.)

Duringthepaycalculationprocess,redflagswentupwithtwostylists.Bothhadverylowclientretentionrates.One,whohadbeenwiththesalonfiveyears,hadearned$44,000thepreviousyearon60%commission.Theotherhadearned$38,000.Bothhadfirst-timeclientretentionratesofonly13%.Commissionrewardedthemforlosingeightoftenfirst-timeclientsassignedtotheirchairs.Theowner,whoonlylookedathowbusytheirchairswere,neversawwhattheseindividualswerecostingthecompanyinlostbusinessandclientdissatisfaction.Thedecisionwasmadetostartthematanaverageoflastyear’searnings,butwitha90-daywin-dowinwhichtocoach,correctandimprovetheirretentionperformance.Ifspecificandmeasurableimprovementswerenotrealized,theywouldhavetobereleased.Theownerwasbeginningtounderstandtheimpactandscopeofthenewpayprogram.Hesummeditupwith,“Ican’tbelievewe’vebeenpayingpeoplesomuchinspiteofpoorperformance.”Suchdiscrepanciesoverpayversusperformancewillnotoccuronthenewpayprogram.

2. Commissions are out of control.

Collectively,mostsalons,spasandmedspascannotaffordtocontinuefundingtheirpresentcommissionratesandexpecttokeeppacewithrisingoperatingcosts.Productcostdeduc-tionsandsalon/spa/medspaservicecharges,whichsimplycannotkeepupwithincreasingoverheadexpenses,arenottheanswer.Suchdeductionsarenotpermanentsolutionsandoftencausesignificantstaffupheaval.

Therecessionoftheearly90sforcedcompaniesandbusi-nessesofallshapesandsizestoreengineertheirsystemsandcultures.Thosethatsucceededquicklyrealizedtheycouldnotexpectnewbehaviorsandlevelsofteamperfor-manceiftheydidn’talsoreengineertheirpayprogram.

ReengineeringRule#1:Youcannotreengineerhalfway.

ReengineeringRule#2:Don’texpectnewbehaviorsandteamperformanceifyourpayprogramstillrewardstheoldbehaviorsyouaretryingtochange.You’llonlyconfusestaffandstallyourefforts.

Publishedstudiesshowthat30%ofallU.S.companiesnowusethe“newpay”(the“newpay”isdefinedasoverallper-formance,skill-basedpaywithteam-basedincentives).That

numberwaszeropercentin1990.Thedrivingforcesbehindthe“newpay”andreengineeringphenomenonareefficiency,productivity,quality,valueandcustomerservice.

3. Commission does not inspire team performance.

Commissionrewardsindividualsalesandcreatesnaturalroadblockstotheteamserviceandperformancecon-cept.Team-basedincentivesareperhapsthemostpowerfulnewperformance-drivingtoolstoarriveonthemanage-mentsceneinthelasthalfcentury.Teamincentivesfocusemployees’energyongrowingthebusiness.Few,ifany,commissionprogramscanmakethatclaim.Sincemanysalons,spasandmedspasalreadypayoutmoreincom-missionthantheycanafford,there’snoroomleftforteamincentives.Reengineeringtheentirepayprogramistheonlylogicalalternative.

Shifting into “new pay” thinking

Thereisno“goldmedal”forreengineeringyourpaypro-gram.Itwon’tsolveallyourbusinessproblemsorinstantlyinspirestafftobehavejustthewayyouwant.It’sarewardsystemandnothingmore.Howefficientlyyoumanagetheprogramwillbethedeterminingfactorforsuccessorfailure.

Themostcommonmistakesownersmakeafterswitchingtothenewpay:

• Introducingthenewpayprogramwithoutavision(goal,objective,purpose)ofwherethebusinessisgoing.Employeesmustfirstunderstandyourvisioninordertounderstandthechangesthatmusttakeplacetoachieveit.

• Focusingonthepayprogramitselfandnotthebehaviorsandresultsitmustinspireandreward.Thenewpaypro-gramwilldriveyourbusinessforwardonlyifyousteerittowardyourvision.Theteammustknowwhattheweekly/monthlytargetsare(sales,retentionandproductivityrates,averageticket,etc.).Thenewpayissimplytherewardsystem.

• Thinkingthatthepayprogramwillmanageitselfandhittargetgoals.Commissioniseasybecauseitplacedtheburdenofbuildingsalesonthetechnician.Commissionsays,“Ifthey’rehungry,they’llproduce.”Thenewpaysays,“Youandtheteammustproducetotheselevelsandstandardsofperformance.”Ifoneormoreteammembersdropstheball,theentireteam–andtheclient–paystheprice.It’slikelearningtowalkagain.


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Getting Outside the Commission BoxWhat gets rewarded, gets repeated: Lessons from a mother of six

Fromanearlyage,weseektoreinforcecertainbehaviors,especiallyinourchildren.Westrivetoteachthemgreaterresponsibility,andasenseoffamilyandcommunity.Inschool,theyareoftensplitintoteamsforgroupactivitiesandsports.Culturally,theconceptofteamandworkingtogetherishighlyregardedandencouraged.Thegoalistoeducatethemaboutbeingresponsible,workinghardandproperlyhandlingmoney.Considertheconceptofgivingchildrenanallowance.Soundssimple,butisit?

Barbara,motherofsix,hadforyearsrewardedherchildrenforcompletingtheirchores.Youcanimaginetheworkthatwentintocheckingtheirprogress.Furthermore,therewerealwayscertaintasksleftuncompletedbecausethechildrenwerenotparticularlymotivated.Theywerehappytakinglessmoneytoavoidthehardlabor.

Onedayheroldestchild,Rick,demandedhisallowanceandjustifiedhispoorlycompletedlistbyblaminghissiblings.

“Mom,IdidallIcando.John’ssideofthebedroomisamessandAnne’sartprojecthastakenoverthediningroom.That’sthebestIcandoandIwantmyallowancenow.”

Barbarawasfamiliarwiththisdialogue.Mosttimesshefeltthewholeallowanceapproachwasmoreworkthanhelp.However,shewantedtoteachherchildrenaboutresponsi-bilityandthevalueofmoney.

ShetoldRicktocallafamilymeetingimmediately.Whenshearrived,thekidswerebickeringandblamingoneanotherforwhattheyfearedwouldbetheendtotheirallowanceprogram.Barbaraexplainedthat,althoughsheappreciatedtheirworkaroundthehouse,thebickeringwasnothelpful,andjobsaroundthehousewerenotbeingcom-pletedsatisfactorily.Sheexplainedthattheywouldreceivemoneyeachweekforcompletinghouseholdchores.Therewouldalsobeanewfamilybonusprize.

Barbaraexplainedthattherewasnowafamilychorelist,whichwouldbepostedandupdatedeachweek.Whenallthechoresweredonebyallthechildren,theywouldreceiveabonus.Togethertheywoulddeterminethebonus.Allthechoreshadtobecompletedby3p.m.Saturday.Shealsosuggestedthat,iftheyworkedtogether,theworkmightgomorequickly.AsBarbaralefttheroom,sheturnedandofferedonemoresuggestion:“TodayisFriday.Wecanall

worktogethertogeteverythingdonebytomorrowat3p.m.Ifyoudo,wewillgotothemoviestocelebrate.”

AsBarbaralefttheroom,shewasn’tsurewhatshehadjustdone.Wouldthiswork?Only24hourswouldtell.

ThehousewasunusuallyquietonSaturday.Thechildrenweremakingnoise,buttherewasn’ttheusualyellingorbick-ering.Barbaradecidedtocheckontheirprogress.Whatshewitnessedstoppedherinhertracks.Theolderchildrenwerehelpingtheyoungerones.HerdaughterCindiwasteachinghersisterEllenhowtofoldherclothes;JohnwasteachingChristoemptythedishwasher.Twoothersweredustingthebookshelves.Nolongerweretheyfocusedontheirsinglelistofassignments.Instead,theyweretacklingtheentirehouseandknockingthedutiesoffthecombinedlists.Barbarahadtopinchherselfforfearthiswasadream.Itwasthenthatsherealizedherformerallowanceprogramhadalwaysrec-ognizedandrewardedindividualresponsibilities–theexactoppositeofwhatshewantedtocreateinherfamily.

OnSaturdayat1p.m.,thechildrenfoundBarbaragardeningoutbackandalertedhertothetime.Asshemadetheroundsthroughthehouse,shemarveledattheirwork.Holdingbacktears,sheaskedwhattheythoughtofthenewfamilybonusplan.Chris,thelittlestchild,spokeupfirst.“Thiswasfun,Mom.IlearnedhowtoemptythedishwasherandJohntoldmeafunnystoryaboutakidatschool.Canwedothisagaintomorrow?”

Ah,finally,thoughtBarbara.“Getcleanedup,kids.We’regoingtothemovies.”

Youmayfeelyourbusinessismorecomplicatedthanahouseholdofsixchildren(thoughBarbarawouldarguethatpointwithyou).Imagineifyoucouldcreateafeelingofteaminyourbusiness,similartoBarbara’snewlyrefocusedfamily.Imagineifeveryonewasworkinginthesamedirec-tion,withthesamegoalinmind.Whatwoulditdoforyourbusinessifeveryonewasinvestedinthegreatergoodandsuccessofthecompany,notjusttheirownpersonalaccom-plishmentsandbankaccounts?Whatifyoucouldcreateanatmosphereoftotalteamsynergy–abusinesscomprisedofcombinedenergy,operationsandsystems?

Howwouldyouratetheeffectivenessofthecurrentrewardandcompensationprograminyourcompany?Areallhandsondeck,rowinginthesamedirectionatasimilarpace?Considerwhatoneperson’soardragginginthewaterdoestothespeedanddirectionofaboat.


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Youmaybelievethatyouhaveeffectivelycommunicatedthefocalpointofthebusiness.Youmayfeelthatajobwelldoneisrewardedhandsomely.Thebiggerquestionis:Ifyoualteredthewayyourewardedyouremployees,wouldyougetdifferentresults?Aha!Youshookyourheadyes,didn’tyou?Thenyoudorecognizethatthewayyoucompensatepeopleinfluencestheirbehavior.

Let’stakeacloserlookatthewayspeoplearecompensatedfortheirefforts.Compensationisacomplexpuzzle,whosepiecesmustallfittogetherintooneprogramthatwillbothmotivateandinspireemployeestoperformatconsistentlyhighlevels.Tobestunderstandwhythestandardapproachtocommissionisoutofalignmentwithtoday’sbusinessthinking,justlookatthebehaviorsandattitudesitrewards.Commissionpay,initsmanyvariations,rewardsemploy-eessolelyfortheirindividualsalesperformance.Youmaybelievethatyouhaveasalesteam.However,intheirminds,theyareworkingtowardtheirowngoalsandleveragingtheirownpositionsonthecompanyladder.

Commissionpayhasenduredbecauseit’seasyforown-ers,managersandemployeestounderstand.It’salow-riskcompensationapproachwithaseeminglyhigh-performancerequirement.Thebeliefbehinditisthatpeopleareulti-matelymotivatedbymoney.Individualswhoofferthispaysystembelievethatifemployeeswanttomakemoremoney,theywilldomoreonanindividuallevel.Buttherearemanychallengeswiththisthinking.

Themostimportantchallengeis:Howdoyoucreateatrueteamenvironmentfromacommissionmindsetandsystem?Afterall,yougetwhatyoureward.Haveyoueverheardanemployeesay,“I’mnotpaidenoughtodothat!”Or,“That’snotwhatIwashiredtodo?”Typically,thetaskathandisnecessarytogrowthebusiness.However,thecompensa-tionplanandtheagendaoftheemployeearefocusedongrowingtheirbankaccounts.Itisimpossibletohaveateamatmospherewithindividualagendas.

Commissionisalsoasafepayprogramforthosewithweakcash-flowmanagementskillsbecause,unlikethefixedexpenseofsalaryandhourlywages,commissionpayrollrisesandfallsalongwithsales.Thismodelassumesthatthereisnogreatermotivatingforceforemployeesthanget-tinganattractivepercentageofwhattheyproduce.

All about Bob! Pay must reward the right behaviors

Considerthebehaviorsyourcurrentcommissionpaymodelrewards.Isthisinalignmentwithyourbusinessandcom-panyculture?Commissionisentirelysales-drivenandrewardsonlyindividualperformance.Italsoencouragescustomerstobuildrelationshipswithwhomeverisrespon-siblefortheiraccount.Thecustomerhaslimitedinteractionwiththecompanybecause“Bobthesalesrepresentative”issingle-handedlyresponsiblefor,andcompensatedfor,thatinteraction.Thiscancreatenightmaresifanemployeeisperformingpoorly.

Howmanycustomershasyourcompanylostbecausetheycouldn’tstandtodobusinesswithBob,theironlypointofcontactwiththecompany?WhatifBobisn’tnecessarilygoodatalltheaspectsofthebusiness?WhatifyoucouldhelpsupportBobwithateamofpeoplewhowouldbuildonthecustomerexperience,andgetmorepeopleinvolvedinservicingthem?JustconsiderwhathappenswhenBobleaves,andsomeoneelsehastotrytoregainhismomentum–orworse,Bobleavesandtakeshiscustomerswithhim.

Atfacevalue,thesemayappeartobeperformanceandcus-tomerserviceissues.However,theyaresystemsdesignedandbuilttosupportapayplanforthecompany.

What about Bob? All for one – not one for one

Today’sbusinessworldisslowlywakinguptothefactthat,together,ateamcanaccomplishmorethanBobalone.Deliveringagoodproductorservicealonedoesnotguaran-teesuccess,orthelevelofcustomersatisfactionthatdrivesloyaltyandretentiontonewheights.Toshinebrightly,youmustfocusonfundamentalcompetenciesandcapabilitiesthatgofarbeyondthebasicsofservicingacustomer.

Astheworldbecomesmoreandmore“electrified,”today’scustomerisleftconnectedtovoicemail,e-mailandauto-matedresponses.Teamandservicearemoreimportantinourtouchlessworldthaneverbefore.

Today’semployeesaremoredemandingandlessloyal.Theywanttoseecareergrowthpaths.Theywanttoknowtheirincomecancontinuetogrow,evenwhentheirschedulesarecompletelybooked.(LasttimeIchecked,wehaveonlytwohands.)


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Commissioncreatesacertaintypeofculturewithinabusi-ness.Ifyourgoalistomovetowardatotalteammindset,thenyoumustevaluatethemethodinwhichbehaviorisrewarded.Lookatyourbusinesswithamagnifyingglass.Peelbackthelayersandlookatthebehavioraloutcomes.Areyourewardingwhatthecompanyneedsmostfromtheemployees?

Ifpeopleareshowinguplate,doesyourcurrentsystemignorethisbehavior–orworse,rewardit?Whensome-oneisstrugglingtoreachasalesgoal,dootheremployeesvolunteertocoachthatperson?Barbara’ssystemrewardedindividualchoresforherchildren.Initially,theydidn’tmaketheconnectionbetweentheirlistofresponsibilitiesandtheoverallwell-beingofthehomeandfamily.Afterpeelingbackthelayersandgettingtotheheartofyourbusiness,doyouthinkthepeoplewhomakeupyourcompanycultureunderstandandgetrewardedfortheoverallwell-beingofthebusiness–orjusttheirslice?

What’s in it for you. What’s in it for staff. What’s in it for the business.

• Ifyoucan,justimaginehowyourbusinessmightperformifeveryonewasforgingaheadinthesamedirection.

• Thewayanemployeeiscompensatedistypicallythelaunchingpadforalltheoperationalsystemswithinacompany

• Whatwouldyourcompanylooklikeifyoubuiltthevisionandmissionfirst–thendesignedacompensationplantosupportthedesiredbehavior?Withteamcultureastheobjective,howwouldyoudesignsystemstosup-portthis?

• Employeeswanttoknowtherulesofthegame.

• Ifyourewardthemforindividualaccomplishments,theywillforgeaheadwithrunningtheir“ownclientele”busi-nesseswithinyours.

• Ifyourewardthembasedonoverallperformanceandforgrowingthecompany,they’llgrowitfasterandbiggerthanyoucanimagine.

Broadbands Visually Communicate TBPEmployees need to know the rules of the game, what’s expected of them and how they can grow

Whenitcomestoassessingemployeeperformanceandcompensation,broadbandsareaninvaluabletool.Theyvisuallylinkcompensationlevelstoskillrequirements,andhelpemployeesandmanagementplotgrowthpaths.Theydefineskillsets,payrangesandincomepotential.Theyareaneffectivewaytosharecriticalinformation,andeliminateclaimsofignoranceofstandardsatperformancereviews.Theyareintegraltofairhiringpractices,graduatedskillacquisitionandconsistencyinperformancereviews.Theyoutlinetheresponsibilitiesassociatedwitheachpositionwithinabusiness,anddefinetherewardpotentialforgoalaccomplishment.

Inshort,broadbandsprovideacompletepictureofanemployee’spositionwithinthebusiness.Theynotonlydrawtheoutlinesofjobresponsibility;theypaintinallthecolors.

Whileeverypurposetheyserveisimportant,perhapsthemostsignificantisestablishingacorrelationbetweenskillandcompensation.Abroadbandderivesitsnamefromitsfunction:Itseparates,into“broadbands,”thespecificskills,competenciesandcontributionsthatarerequiredateachlevelofcompensationwithinabusiness.Thebandsarebroadsothatemployersandevaluatorshavealittlewiggleroom,andareabletoincentivizeaccomplishmentswith-outguaranteeingwhatcouldbeasignificantpayincreasetosomeonewhomaybeonlymarginallydeserving.

They’re a guide – not an absolute

Broadbandsarenotareplacementorsubstitutefordetailedjobdescriptionsorpositioncontracts.Theyarenotdesignedorintendedtoprovidethesamelevelofdetailconcerningaposition’sduties,responsibilitiesanddesiredoutcomes.Westressthisbecausewe’veseenmanybusinessesover-buildandover-complicatetheirbroadbandstothepointthattheyconfuseandevendemoralizestaff.

Whendesigningbroadbandsforthevariouspositionsinyourbusiness,you’rebuildingaguideforcareergrowthandincomeadvancement.Broadbandsshouldnotbesorigidthatanemployee’sperformanceisstrictlymeasuredagainstit.Remember,team-basedpayisaboutoverallperformance,creatingtherightbehaviors,andbusinessculture.That’swhywestressthatbroadbandsareaguide–notanabsolute.


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8


9

The Purpose of BroadbandingIncreasing business performance by decreasing the com-plexity of work and compensation systems

Remember,abroadbandisnothingmorethanitclaimstobe:acompensationstrategythatconsolidatesalargenumberofpaygradesintoafew“broadbands.”Jobsaregroupedbasedonthetasksinvolvedandrequiredskills.Thismeansthatemployeescanmoveupthecompensationladderwith-outtraditionalpromotionsandjobdelineations,becausetheirmovementisbasedonskillattainmentandperfor-manceratherthantheirtenurewithabusinessorinacertainposition.Doesthismeaneveryonegetsafreepass?Hardly.Aneffectivebroadbandwillactuallybefairlyrigoroustomovethrough,especiallyintheupperlevels,whereskilllevelsandcompetenciesarealreadyhigh.Itwilldemandnotonlyskillattainment,buttheabilitytoputthoseskillstouseduringclientservices,teammeetings,brainstorm-ingsessions,andleadershipandmentoringscenarios.Itwilldemandadepthandbreadthofgrowthfromemployeesthatreachesfarbeyondtechnicalcapability.And,finally,itwillshowemployeesthepersonalandprofessionalrewardstheywillattainasaresultoftheirefforts.

Bynow,youmaybethinkingthatbroadbandswillonlyworkinbusinessesthathavestrongteams.Inreality,theywillonlyworkinbusinessesthathaveaculturestrongenoughtosupportateam.Everythingneedn’tbe“justso”inordertobuildandusebroadbands–buttheydoworkbetterinsomebusinessesthaninothers.Anewkindofrede-sign,broadbandingworksbestinbusinessesreadytoshirktraditionalemployeerolesandjobclassificationsthatsup-portoutdatedmanagementsystems.Inotherwords:Ifyouwanttocreateahigh-performance,team-orientedworkplacethatoffersgreaterflexibility,cross-trainingandemployeeinvolvementindecision-makingprocesses–you’lllikelyneedtochangeafewthingsinthewaythebusinessismanaged.

Themannerofemployees’work,andthewaytheyarecompensatedforit,istheheartofthematter.(Inmanycom-panies,it’sanabsentheart,becausethereisnoconsistentmethodologyforeither.)WhatdotheCFOsknow?Broad-bandsofferobviousadvantagestoemployers:Whenjobsaredefinedmorebroadly,it’seasiertogetthingsdone.Employeescanbeencouragedtomulti-taskandcross-train,whichincreasestheirlearningopportunitieswhileimprovingthebusiness’sproductivity.Butthat’snotall:

Broadbandscanalsoreducethenumberofpaylevels,oratleasthelpyougetahandleonthem,bytyingpayadvance-mentdirectlytofactorsotherthanseniorityandclientlists.Thisresultsingreatercontroloverallocationandtotalpay-rollcosts.Ofcourse,broadbandingcanbeusedwithanycompensationsystem–whethersalary,commissionorseniority-based.Butitseemstoworkbestwhensomesortofskill-basedelementisincorporated.Whilenothingaboutbroadbandingorcertifyingemployees’skillsismeanttodiminishthecurrentimportanceorintegrityoftheindi-vidual,itismeanttoincreasetheirvaluetothebusinessbyrampingtheirskillsupwardandinvolvingthemmoredeeplyindecision-makingprocesses.Performance-basedbroadbanding:

• shouldfocusonongoingandeffectivecommunicationandemployeetrust.

• worksbestinbusinesseswheretheexistingcultureencouragesimprovedperformance.

• worksbestinbusinessesthathavestrongperformancemanagementsystems.

• needsadequatefunding.Increasesinpayshouldbemean-ingfultoemployeesandappropriatetotheircontributions.

• requiresadequatecontrols,inordertokeeptotalcostsinlinewiththecompany’struecapabilities.

• requireshighlevelsoftrainingforemployees.

• requiresinnovativerewardsystems.

• shouldresultingrowthforemployeesandthebusiness.

Team Bonus: Designing Your Team’s Brass RingTeam bonus sounds great, but where is it going to come from?

Themandateofteam-basedpayissimple:Everyoneisresponsibleforgrowingthebusiness.Thesewordsarepow-erful,butwordsalonearen’tenoughtoinspiredynamicteamperformance.Apayprogramalonecannotinstillabusiness-widesenseofurgencytodriverevenuesup,man-agecostsandbuildnetprofit.Giventhis,team-basedpayusesteambonusasameansofdrivingthefourbusinessoutcomes:productivity,profitability,staffretentionandcus-tomerservice.

Beforegoinganyfurther,let’sbeclear.Ateambonusisnot


10

anentitlementthatemployeesreceivesimplybecausethebusinesshitagoalorgeneratedprofits.Entitlement-basedbonusescannotshapeorencouragedynamicteambehav-ior.Forexample,anannualChristmasbonusthatisnotattachedtoanyperformancegoalisanentitlement.Employ-eeswillexpectiteveryyearand,shoulditstop,therewillsurelybeadisturbanceintheforce.

What’s your critical number?

Everybusinesshascriticalnumbersthat,whenachieved,haveaprofoundimpactononeormoreofthefourbusi-nessoutcomes.Morespecifically,drivingacriticalnumbershapesteamperformanceandbehaviorinalastingway.Clearlythemostobviouscriticalnumberisnetprofit–butitcanalsobeproductivityrates,clientretention,grossmargingoals,productandmaterialcosts,etc.

Tyingteambonustotheachievementofacriticalnumbermakesthebusinessgameinteresting.Italsoaddsflexibilityandvarietytoyourprogram,whichwillhelpmaintaintheall-importantsenseofurgencythatdrivesteamperformance.

Givecarefulconsiderationtodefiningyourcriticalnumbers.Beginwithanumberthat,whenachieved,willhavethemostprofoundimpactandgivecauseformajorcelebration.

It has to be about the “stretch”

Teambonusisnotaboutmaintainingstatusquoper-formance.It’sareward,earnedthroughhard-foughtachievementofclearlydefinedgoalsabovewhatisconsid-eredreasonablyachievable.Thethinkingissimple:Ifyouwantgrowth,teamperformancehastostretch.Awordofcautionhere:Whenwesay“stretch,”wemeanincrementalgrowthsteps,notgiantleaps.Remember,ateamhastowinregular-seasongamesbeforegoingtotheSuperBowl.

It has to be self-funding

Nothingwilldemoralizeateammorethantoachievetheirgoal,butbetold,“Oops,there’snomoneyforbonus.”Whetheryourteambonusisbasedonhittingnetprofitgoalsorsomeothercriticalnumber,yoursystemmustbeself-funding.Achievingthegoalmustcreatenetprofit–cash–atthebottomline.Caution:Donotplaytheteambonusgameifyouandyourleadershipteamarenotcommittedtobeingfiscallyresponsible.

Onewaytocreateaself-fundingbonusprogramistoset

minimumnetprofittargetsthatmustbeachievedbeforebonusisawarded.Forexample:Ifnetprofitcurrentlyaver-agesalackluster5%,youmaysetanewbaselineof7%–8%,whichneedstobeachievedbeforeanymoneydropsintotheteambonuspool.Thisapproachensuresthatcurrentprofitlevelsarenotonlymaintained,butactuallyincreasedbeforeteambonusiscalculated.(Remember,securingthecompa-ny’sfuturemustbepartoftheteam-basedbonusprogram.)Oncenetprofitexceedsthebaselinesetforfundingandactivatingtheteambonuspool,youcanschedulemonthly,quarterlyorannualpayouts.Tokeepthegameinteresting,considerrampingupthepayoutinprogressivestages,lead-inguptothebig-gamepayoutattheendoftheyear.Howmuchofthegaingoesintotheteambonuspoolrequirescarefulconsiderationandathoroughunderstandingofthecurrentandnear-futurefinancialrealitiesofthebusiness.

It has to be super simple

There’snothingworsethanateambonusprogramnoonecanunderstand.Resistthetemptationforelaborateformulasandpayoutschemes.Focusinsteadoncreatingaprogramthateveryemployeecanunderstand.Tryquizzingemploy-eesonthefinalplan,toseeiftheycanexplainittoyouorotheremployees.Iftheycan’t,it’stoocomplicated.

You have to keep score

Sinceteambonusistieddirectlytoperformanceandhit-tingyourcriticalnumbers,yourprogrammustincludearapid-firecommunicationsystem.Toaccomplishthis,team-basedbusinessesincorporatedailyhuddlesandscoreboards,whichkeepeveryoneinformed,engagedandfocusedonachievinggoals.Everyoneofourcoachingclientsthatusesdailyhuddlesandscoreboardsreportsfastergrowth,signifi-cantcostreductionsandstrongerprofits.Dailyhuddlesandscoreboardsmaintainthatessentialsenseofurgency.Don’toverlookthiskeypieceofteambonus.

Distributing bonus

Teamachievementmeanseveryoneontheteamgetsashareofthebonuspayout.Somebusinessestakethe“every-onegetsafairshare”approach–fromtopmanagementtohousekeeping.Othersuseasystemofdifferentiatedlevelstodistributebonusbasedondecisionmakingandaccount-ability–notexcessivelyso,justenoughtorewardandrecognizetheirleaders.Abalancedteambonusprogram


11

shouldalsoincludequalifiersforparticipation.Nothingwilldashteamworkmorequicklythanplayerswhodon’tcon-tributeorplaythegame.

Conclusion

Teambonusisakeyelementincreatingawell-balancedteam-basedpayprogram.It’sthatspecialingredientthatkeepsbusinessexcitingandemployeeslaser-focusedongrowth,costcontrolanddrivingnetprofits.

The Financial Accountabilities of LeadershipFinancial statements are like crystal balls

Financialcontrolisacornerstoneforimplementingateam-basedpayprogram.Ithasbeensaidthatoneofthemarksofagoodleader–andanychangeinbusinessoperationswillrequiregoodleadershipskills–istheabilitytopredictthefuture.Updated,accurateandfrequentfinancialstatementsenableyoutodothis.Cash-flowplans,balancesheetsandincomestatementsarethreefinancialtoolsthatallowyoutopredictandcontrolyourfinancialfuture,holdeveryoneaccountableforyourcompany’sgrowth–andhonorprom-isesmadetotheteam.Let’slookatthecashflowfirst.

What do you get from cash flow?

Cash-flowplanningtellsustheamountofcashourbusinesswillordidgenerateduringaspecificperiodoftime.Cashisthefuelthatdrivesabusiness.Themorecashonhand,thegreaterthebusiness’sabilitytohelpgetridof(oratleastpaydown)debt,providerevenueforcompanyinvestment,andgrantincentivestotheteam.

Cash-flowplanningalsotellsus:

• whenexpenseswillcomedue,andhowmuchhastobepaidout.Takingasharpknifetoallthecompany’sexpensesinordertodecreaseitscashoutlaywillobviouslyincreaseyourcashposition.Butinvolvingtheteamintheprocesscanoftenleadtosurprisinganddramaticresults.

• wheretheincomewillcomefromtopaytheseexpenses.Makingrealisticgoals,orpredictions,givesyourteama“roadmap”tosuccess,aswellasinspirationforteamperformance.Periodicallyreviewingthesegoalswillhelpkeepthefiresburningandensuretheyareneithertoohigh(whichcancauseasenseofdiscouragement)nortoolow(thusfailingtoprovideinspiration).

• everyoneisfiscallyresponsible.Accountabilityisanimportantingredientincash-flowplanning.Withoutthetransparencythatderivesfromfrequent–wesuggestweekly–cash-flowupdates,eventhebest-madeplanscangoawry.Thisaccountabilityalsoinstillstrustinthecom-pany’sleadershipteam.

• wheretheleaksare.Whenextraeffortisneededtostopthebleedingofcertainexpenses,oreffortsneedtoberedi-rectedatincreasedsales,cash-flowplansallowustoputourmanpowertousewhereit’smostneeded.Thisallowsacompanytoturnitsfinancialshiponadime.

Ifyoureallywanttosuperchargeyourcompanyanditsgrowth,thereisprobablynobetterwaythanthroughexcel-lentcash-flowplanning!Cash-flowplanningisforwardthinking.(Thinkofitasahighlydetailedbudget.)Remem-ber,nowthatpayrollhasbecomeafixedexpenseunderteam-basedpay,itdoesnotgoupassalesdo–ensuringanevengreatercashposition.

Agoodcash-flowplaniscreatedonacalendarorfiscalyear,andbrokendownbyindividualmonths.Someofthespecifics:

• Salesrevenues(thetopline)arecreatedthroughsalesoveracertainperiodoftime,includingsalesofservices,retailgoods,andgiftcardsorpackages.

• Costofsales.Thisexpenseusuallyincludescostsdirectlyincurredbythecompanyinprovidinggoodsandservices–payrollforservicepersonnelandtheirassociatedpayrolltaxes,costofretailitemssold,andcostofsuppliesneededtoprovidesaidservices.Eachoftheseexpensesislistedseparately;thefinal“costofsales”lineshowsthetotal.

• Grossprofit(orgrossmargin).Subtractcostofsalesfromthetoplinetofindgrossprofit.

• G&A,orgeneralandadministrative,costs.Hereiswhereallotherbusinessexpensesarelisted,fromadvertisingtoutilities.Eachislistedseparately,andallarenormallypaidonamonthlybasis.Again,thereisaseparatelinethatshowstheirtotal.

• Grossnetprofit.Theamountofcashavailableafterallexpensesarepaidbutbeforetaxesarepaid.

Wenowhaveacompletedcash-flowplan,whichshouldshowthemostaccurateandup-to-datestatusofyourbusi-ness.Butwhileit’sanimportanttool,it’snottheonlyone.


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What’s on the income statement?

Incomestatements,otherwiseknownasprofit-and-lossstatements(orP&Ls),areasummaryofacompany’sprofitorlossduringagivenperiodoftime,whetheronemonth,threemonthsorayear.Theincomestatementrecordsallrevenuesforabusinessduringthisperiod,includingthosethatcomefromsourcesotherthanitscorebusiness,aswellasalloperatingexpenses.

Incomestatementshelpdeterminetheperformanceofyourbusiness.Small-businessownersusethemtofindoutwhatareasoftheirbusinessareover-orunder-budget,accord-ingtotheircashflow.Itemsthatareusingmorecashthanexpected–suchasphone,rent,shippingandpostage,supplyexpenses–canbepinpointed.Incomestatementscanalsotrackdramaticincreasesinproductreturnsorcostofsales.Theycanbeusedtodetermineincometaxliability,asthecash-flowplancannot.

Incomestatementscontainsomeofthesameinformationfoundincash-flowstatements,plussomegreaterdetail:

• Salesrevenues–notjusttheonesgeneratedfrom“nor-mal”sales,butalsoanyderivedfromsourcesotherthanacompany’scorebusiness(e.g.,anyincomegeneratedfromrentingcompanyspaceforaparty).

• Costofsales.

• Grossprofit.

• Generalandadministrative.

• Depreciation.Thisisanannualexpensethattakesintoaccountthelossinvalueofequipmentusedinyourbusi-ness.Equipmentsubjecttodepreciationmayincludefurniture,computersandprinters.Whiledepreciationisimportanttohelpreducetaxliability,it’snotactualcashleavingthebusiness.Thisisonereasonwhyanincomestatementcannotreplaceacash-flowplanindetermininghowmuchcashabusinesshas.

• Taxes.Ouch–youknewtheywerecomingsoonerorlater.

• Netincome.Thisistheamountofmoneyleftafterthebusinesshaspaidincometaxes.

Itisveryimportanttobuildanincomestatementthatisappropriatetoyourbusiness,soworkwithyouraccountant.Incomestatements,alongwithbalancesheets,arethemostbasicelementsneededbypotentiallenders,suchasbanks,

investorsandvendors.Theywillusetheinformationtodeterminecreditextensionandfinancingeligibility.

What’s on the balance sheet?

Balancesheetslistacompany’sassets,debtsandownerinvestmentsasofaspecifieddate.

Abalancesheethelpsabusinessownerquicklygetahandleonthefinancialstrengthsandcapabilitiesofthebusiness–Isthebusinessinapositiontogrowandexpand?Itcanhelpidentifyandanalyzetrends.Canthebusinesseasilyhandlethenormalhighsandlowsofrevenuesandexpenses?Orshouldittakeimmediatestepstoboostitscashreserves?

Asimplifiedbalancesheetincludesassets(whatabusi-nessowns),liabilities(whatitowes)andequity.Equityisthemoneyabusinessowesitsownersafterallcreditorshavebeenpaid.Itisalsothe“bookvalue”ofyourbusiness.Aswithhomeownership,you’dliketoseethevalue–theequity–ofyourbusinessincreasewithouttakingoutasec-ondorthirdmortgage.

Okay, where to start?

First,it’sprobablytimetosetupthatmeetingwithyouraccountant.Reviewthecash-flowplan,incomestatementandbalancesheet,linebyline.Maybetakeafinancialman-agementclassand/orfindacoachwhowillnotonlyexplaintheworkingsoffinancialstatements,butalsoholdyouaccountableforputtingthenumbersintoaction.

Builda12-monthcash-flowplanandgetintothehabitofworkingwithyourcashflow,weekly.Onlythroughbecom-ingfamiliarwithyournumberswillyoubecomeproficientatunderstandingthem.Sharethesenumberswithyourteam,usingscoreboardsandhuddles,tohelpcommunicatethecompany’sgoals.

Whilesharingthenumbersmayseemscary,it’sthekeytoinspiringyourentireteamtomoveyourcompanyforward.Yourfinancialsareyourcompany’sscorecard–youcan’texpectyourteamtoplaytowiniftheydon’tknowthescore.


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Owner Compensation: Can you still pay yourself?Leaving the “hands-on work” is the easy part. Continuing to take a salary is the challenge

Inthesedaysofstiffcompetitionandrisingoperatingexpenses,thereisanever-increasingsenseofurgencyforownerstofocusexclusivelyonthefinancial,managerialandmarketingneedsofthebusiness.MoreandmoreownersareechoingthekeylessonespousedbyMichaelGerberinhisbest-sellingbook,The E-Myth:“Workonyourbusiness,notinyourbusiness.”

Finally,thetraditionallydominantcreativeandtechnicalsideofthesalon/spa/medspabusinessisgivingwaytothelong-neglectedbusinessside.Ownersarerecognizingtheneedtoworkontheirbusinesses,andmanyarewillingtogiveupthecomfortzoneoftheir“chairs”todoso.

Who gave your pay away?

Thedecisionismade.Thewheelsareinmotion.Whether“coldturkey”oringradualsteps,youareshiftingyourcli-entsintothecapablehandsofotheremployees.Finally,there’stimetofocusexclusivelyongrowingthebusiness,fixingallthoseproblemsandworkingonthebigpicture.You’reincontrol.Everythingisfallingintoplace.

Afewweeksintothetransition,younoticethatcashflowisgettingtight.Youdiveintoyourpoint-of-salesoftwareprogramandstartrunningsalesandperformancereports.Thesereportstellyouthatrevenuesarenotonlyholdingsteadywithoutyoudoingtechnicalwork,butareactuallyincreasing.Youopentheaccountingsoftwareandrunsomeprofit-and-lossstatementstoseewhereallthemoneyisgoing.Youcalltheaccountanttohelpfindthefinancialleak.Youknowit’sthere.

Afteranexhaustingsearch,realityhitslikealeadballoon.Whenyouleftthetechnicalside,youcontinuedtotakethesamesalaryeachweek,neverfactoringintheeffectofcom-missionsonthecashflowandtheabilitytocontinuetotakethesamesalaryyouenjoyedpreviously.Simplyput,whenyoushiftedyourclientstothestaff,youalsogaveawayyourpay.Ineffect,yourcommissionpayprogramgavetheotheremployeesaraise.

Failuretorecognizethecombinedfinancialimpactofleavingthehands-onwork,shiftingclientstostaff,payingcommissionandattemptingtomaintainasalaryisacostlyerrormadebysomeofthebestownerswiththebestbusinessintentions.

“What ifs” and cash flow

Theonlywaytoproperlyplanandfinanceyournewpositionasafull-timeleader,manager,coachandadministratoristodoa12-monthcash-flowplan.Constructingmonthlycash-flowplansisnotanoption.Youareflyingfinanciallyblindwithoutthem.Althoughmanyaccountingprogramsincludecash-floworbudgetingfeatures,somesimplyuseaveragestofillintheblanks.Othersdon’tallowyoutocustom-buildseparate,uniquecashflowsforeachmonth.Thebeststrategyistocreateacash-flowplanforeachoftheupcoming12months.Micro-softExcel©isawonderfulprogramforcash-flowplanning.Youcan“whatif”asmuchasyouwant,andseehowchangesineachrevenueandexpensecategorywillaffectprofits.

Should you rethink compensation?

Ifyourgoalistoworkfull-time“on”thebusiness,nowmaybethebesttimetorethinkthecompany’spayprogram.Asstated,commissionpaypresentssomeinterestingobstaclesthatmustbeaddressed.Remember,ifyoushiftyourclientstootherstaffmembers,theywillreceivecommissiononthosesales.Ifyoualsocontinuetotakethesamepayeachmonth,yournetprofitwilltakeamajorhit.

Lots to consider

Leavingthechairortechnicalsideisacommitmenttogrowyourbusiness.It’salsotheperfecttimetoreengineerandmodernizeyoursystems.Wearenotsayingthatmov-ingtoateam-basedpayprogramisamandatorystep,but,dependingonyourcompany’sfinancialpositionitcertainlydeservesseriousconsideration.

Communication SkillsExplaining what, why, how and the score

Inorderforteam-basedpaytobesuccessfulwemustremembertheimportanceofpromotingclear,effectiveandopencommunication.

Weoftendealwithnewideas,withchangingthewaythingsaredone,andwithtryingtopersuadeotherstoourpointofview.However,therearemanybuilt-inobstaclesthatpre-ventpeoplefromautomaticallyacceptingandabsorbinginformation.

Makingyourstaffwanttohearyouisprimary.Whywouldsomeoneelsespontaneouslybecomeinterestedinyour


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vestedinterests?You’dneedapropellant–somethingthatcouldmakeadifferenceandactivelyturnyourstafftowardyourview.

What makes people listen? Self-interest

Thebestwaytogenerateyourstaff’sself-interestandtogetthemtolistenistodiscoverandshowthemwhat’sinitforthem.It’stoletthemknowthatyouunderstandtheirself-interest–byfocusingontheirpointofviewatthestart,beforeyoutellthemaboutyours.Thiswillmotivatethemtotunein,anditiscriticalwhentalkingaboutpeople’spay.

Whenworkingtheteam-basedpaysystem,oneofthemostimportantthingstofocusonisdrivingsalesupward.Thisiswherepayincreaseswillcomefrom.It’simportanttocom-municatethistostaff,andteachthemhowtodrivesalesupward,sothattheycancontinuetohaveincreasedgrowthopportunities.Showthemhowincreasedproductivityandefficiencywillaffectsales.Showtheminrealnumbers.Showthemwherethenumbersneedtobeinorderforraisestobegranted.Whentheyknowandunderstandthenumbers,theywillbebetterabletoworktowardyourstatedgoals.

InhisbookThe Great Game of Business,JackStackstateshisninthhigherlawofbusiness:“Ifnobodypaysattention,peoplestopcaring.”Thisisastruewithyourteam-basedpaysystemaswithanyothernewsystemyouimplement.Peoplehavetoknowwhatthegoalsareandhowwhattheydoaffectsthosegoals,ortheywon’tcare.

AtStrategies,wealwayssay,“Ifyoufallasleep,they’llfallasleep.”Thismeansthatyou,astheleader,mustalwaysknowwhat’shappeninginthebusinessandcontinuallycommunicatewithyourstaff.Keeptheminformedofwhat’shappening,andinspiredtokeepmovingforward.Ifyoufallasleep,they’llfallasleep.

Communication tools

Scoreboardsarethebasicvehiclesofcommunication.Theyaredesignedtokeepstaffinformedofwhatthebusiness’sgoalsare,aswellastheprogressbeingmadetowardthosegoals.Onethingweknowabouthumannatureisthat“whatgetsmeasured,getsdone.”Whenstaffseesthatperformancegoalsarebeingtracked,andtheyunderstandhowtheycanhelppushthemintherightdirection,andtheyhaveastakeintheoutcome,theybegintomakethosenumbershappen.

Scoreboardsforcealevelofaccountabilityand,hence,per-

formance,that’smissinginmanycompanies.Thenumberscomeinquickly–usuallydaily,oratleastweekly.Andthey’rewatchednotjustbyowners,butalsobymanagers;they’repassedontoemployees,soproblemsgetaddressedfaster.Communicatingthecompany’sprogressletsman-agersandemployeesseetheeffectsoftheirwork.Itwilldefinitelyhaveapositiveimpactonperformance,productiv-ity,efficiencyandquality.

Huddlesareregular,short,structuredmeetingsdesignedtoverballycommunicatewhat’shappeninginthebusi-ness.Thisisthetimetodiscussfinancialinformationfromthemostrecentperiod,andforecastsforthecomingweekandmonth.Huddlesarethenextlinkinthechainofcommunication.

Huddlesandscoreboardsgohandinhand.Thescoreboardswillbemoreeffectiveifverballycommunicated,andthishappensinthehuddle.

Huddlespassvitalinformationthroughthecompany.It’swhenandwhereemployeesgettoseethebigpicture:whatstillneedstogetdoneandhowtogetitdone.Huddlesgetandkeeppeoplemovingintherightdirection.Theygeteveryoneworkingtogethertomaketheimprovementsthatwilldeterminewhethertheteamwillsucceed.

AsJackStacksays,“Thehuddlesarehowweregeneratetheprideandsenseofownership,howwecreatemutualtrustandrespect,buildcredibility,lightthefireinpeople’seyes.Aboveallthisishowwedriveignorancefromthework-placeandteachpeoplehowtomakemoney.”Huddlesareverypowerfulindeed!

Usingasystemofscoreboardsandhuddles,andholdingeveryoneaccountableforgoals,willhelpyoutocontinu-allycommunicatewithemployees,anddriveyourbusinesstohigherlevelsofperformance,productivity,efficiencyandquality.

Comments from Team-Based Pay Business Leaders

Team-basedpayhastakenmybusinessfromsomethingthatlookedlike“crossmyfingersandhopeforthebest”tolead-ershipclarityandpredictableoutcomes.ItwasfundamentalthatIunderstandwhatittakestoleadandgrowacom-pany–tobeabletoshowourteammembersgenuineandachievablecareerpaths.Team-basedpayandtheStrategiessystemsputallofthepiecestogether.Wenowhaveacul-


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turethatwecanallbeproudof.Wehavesystemsinplacethatensurecustomerservice,communicationandoverallgrowth.Inolongerspendmydaysputtingout“fires.”Werebuiltourbusinessonthefoundationofteam-basedpayand,eventhoughitisalwayschangingaswegrow,myteamandIcouldn’tbemoreproudofthecompanywehavecre-atedtogether.

MichaelYostSalonH20Erie,Pa.

Team-basedpayhasmadethebiggestdifferenceintheover-allqualityofmybusinesssinceopeningmyfirstsalonin1989.Havingbeena“technician,”Ihadlittlebusinessexpe-rienceorknowledgeofhowtorunmybusinessandpaymystaffotherthanthecustomarycommissionmethod.Com-missionwasaneasywaytorunmybusinessandworkedwelluntilItriedtochangecertainbehaviors.NomatterwhatIdid,Icouldnotgetthetechnicianstoembrace“my”business.Itwasallaboutthem,theindividual,anditmadeforstrenuousrelations.

Afterawalkout,IreengineeredourbusinessmodeltobeginusingsomeoftheStrategiessystemsandtoolsandchangedtoasalarywithcommissionoverride.Thishelpedusgrowbuttherewasstillthatindividualistbehavior.Thesystemwasstillrewardingthewrongthing.

OnceIattendedanIncubatoranddidafullconversiontoteam-basedpay,thingschangedrapidlyforthebetter.Ourbusinessreallytookoffandwehadtoexpandtomorethandoubleoursizewithin14months.Ayearlaterweadded1,500square-footspa.Weopenedasecondlocationin2006inaneighboringcommunity.

Theteam-basedpaybusinessmodelhelpsyoutotakecon-trolofyourbusiness.It’snotabusinessonautopilot.Youmustdevelopskillstomanagethesystems.Intheend,team-basedpaywillgiveyouthefreedomtorunyourbusinessasyouseefitanddeveloptherealvalueagoodbusinessdeserves.

SonnyRapozoHotLocksSalonSpasN.FalmouthandPlymouth,Mass.

Idonotknowifteam-basedpay(TBP)isforeveryone.However,onethingIdoknowisthatthesalonindustrywillhavetheexactsamechallenge30yearsfromnowifwedon’tchangethesystemanddothingsdifferently.Strat-egies’sTBPoffersanewoptionforarewardsystemthatencouragestherightbehaviorintheentiresalonteam.Thesalonwillbefreefromafear-basedcultureandwon’tbeheldhostagebycelebritystylists.Whenthestudentisready,theteacherwillshowup.Areyouready?IbelievethatNeilDucoffandtheStrategiesteamhastheanswerforthesalonindustryworldwide.

PingChuCanmengInternational–(sixlocations)Taipei,Taiwan

Whatdifferencehasteam-basedpaymadeinourcompany?Simplyinoneword,“everything.”Wherecommissionsfallshort,team-basedpay(TBP)goesthedistance.TBPallowsyoutotakecontrolofyourfinancialfuturethroughcon-trollingyourbudgetandplanningyourspending,includingraisesfortheteambymerit.

WhenIstartedmysearchfortheperfectpaysystem,Ilookedforsomethingthatwouldfitwithinmyvaluessys-tem.Bydesign,TBPtrulyrewardsthebehaviorsthatwillcreategrowthformycompany.Moreimportantly,itgavemebackcontrolofmycompany.Asweallknow,toppaidtechniciansaren’talwaystopteamplayersoreventhemostloyaltothesalon.

Askyourself,whatwouldhappenifthereisawalkout?Areyourclientsloyaltoyourcompanyoratechnician?SincegoingonTBP,I’mnolongerhostagetomystaffand“theirclients.”TBPtrulygavemetheteamandbusinesscultureIwasseekingbutdidn’tthinkwaspossible.Ithasalsogivenmearecruitmenttoolaswell.IcanprojectwhatIcanaffordtopayanewhirewhetheritisaveterantechnicianorarookiejustoutofschool–andtheycanbudgettheirincomeaswell.

ThefirstyearweswitchedfromcommissionstoTBP,wegrewmorethan$100,000.IbelieveinTBP.

ShariSellAdaviaSalon&SpaForestLake,Minn.


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Whenmypaystructurewastheindustrystandardofcom-mission,mypayrollcostsweremorethan65%withtaxes.IattendedStrategiesIncubatorandthen,gettingmoreStrat-egiesinformationandapplyingwhatI’velearned,Iwentfromcommissiontosalary,thenultimatelyI’vestayedwithhourlyandteambonusassuggested.Thishasfreedourteamuptothinkasagroupvs.justindividuallyandhasbroughtpayrolltomorereasonablelevelstoworkwithinmycashflow.

Learninghowtomanagethecashflowinandoutofthebusinesskeepsthebusinesshealthyandcanhelpprovideinroadstocoursecorrections,ifnecessary.Thanks,Mr.Ducoff!

KimberlyAcworthIndulge,AColourSalon180fromOrdinaryYork,Penn.

Afewyearsago,IhadtheopportunitytolistentoNeilDucofftalkaboutteam-basedpay;itmadetotalsenseforme.

Itwasn’tuntilIwastotallycommittedtotheconceptthatIsawresults,andnotjustresults,amazingresults!

MyhusbandandIpurchasedeverythingfromIncubatorandothercoursestoprivatecoaching.(Ofcoursewedidnothavemuchmoneytostartwith,butwemadethisapriorityandgotgreatfinancialhelptobeabletodothis.)

Webelievedthatforus,realteamiswhatwestandfor.Shar-ingisempowering.

IservedintheIsraelArmyfortwoyears,soIunderstandstructure,butwhatIhavelearnedfromNeilistheartofnocompromise.

Theminuteyoustarttocompromise,youloseyou,andyoucannotloseyou!

Myteamhadtochangeseveraltimes.Yes,yesIknowthatyouhavetoputsomecashoutfrontthere-—salariesandbenefits–andmakesomehardlifechanges.Youhavetocommitandworkhard,butboy!Whenyougettotheotherside,seeingyourstaffgrowandsupportyouandlovetheteam-basedconcept.

Thattrustisinfectious,andisn’tthatwhatit’sallabout?

Forawhilethere,Ithoughtthatthemostimportantthingisyourclient,butIhavelearnedfromNeil’sconceptthatthereareeightimportantdrivers,notjustone.

NeilandhiscoacheshavebeenamentorateverylevelofMaxime’sprogressandthedevelopmentofmyprofessionalandpersonalgrowth.

Team-basedpayisnotonlytheway,itistheonlyway.

RonitEnosMaximeSalon/MaximeBeautyHingham,Mass.

Team-basedpaygivesuscontrolonsalariestomakeabusi-nessbudgetthatkeepspayrollatorunder38%.Itstronglyencouragesteamnotindividuals.Itoffersbroadbandsthatmakesensetostaffandowners.Itenabledustohireanofficemanagerandgivepaidvacations.

Team-basedpayhasgivenAndreaandIabusinessthatrunswithoutusthere.Thatsoundslikeadream,asonlyafewshortyearsago,webothwereworkingsixdaysaweekbehindthechair.

WefeelveryluckytohavefoundStrategiesandNeil.Wearenowinthebeginningstagesofmyretirement.IwillstillgointwodaysaweekanddowhatIenjoy,workingonafewclientsandhelpingsetthevisionofthefutureforourcompany.Team-basedpaystarteditall.

DanGreenHairProfessionalsWestPalmBeach,Fla.

Eightyearsago,mywifeandIstartedourjourneytocreateMangoSalon.

Likemostenergetic,highlycharged,naïvebusinessown-ers,wewantedoursalonculturetobedifferent.Mywifehadmorethanthirtyyearsofexperienceasahairstylistworkinginovertensalonsinmultiplestates.Asabusinessprofessional,Iwantedtocollaboratewithhertocreateaprofessionalorganizationthatwasfoundedonteamcon-ceptsandprinciples.

Theexistingcompensationmethods(commission-basedorboothrental-based)failedtosupportthebehaviorwedesiredforournewMangoculture.Whycouldn’tasalonofferthesamebestpracticesasotherprofessionalindustries?

Afterspendingmanyhours,days,weeksandmonthsevalu-atingourstrategy,wediscoveredNeilDucoff’steam-basedpayapproachtosaloncompensation.AfterreadingNeil’s


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bookFast ForwardandattendingtheIncubatorcourse,wehadfoundoursolutionforournewbusinessventure.“Eureka!”wethought.

However,readingaboutthisnewwayofthinkingwasfareasierthanimplementingatotallynewapproachforreward-ingsalonprofessionals.

Howcouldweattractandkeephairstylists?Whywouldtheyconsiderasalonthatrewardedteam-basedbehavioroverindividualcommissionrewards?

Wouldwebeabletosurviveduringthefirstyearwiththefixedcostcommitmentofpayingprofessionalpayregard-lessofthesaleslevels?WouldourMango“brand”bebuiltaroundtheegooftheownerorindividualisticrockstars?Toughquestionsfortwonervousandnaïvebusinessowners.

Today,IstronglybelieveoursuccessinbuildingMangofromasmallten-personsalontoamultiplelocationsalonorganizationwitheightyprofessionalsstartedthemomenteightyearsagothatwecommittedtotheteam-basedpaystrategy.Itisnotjustacompensationmethod.Team-basedpay,orour“MangoProfessionalCareerPathingProgram”isourwayofhelpingourteammembersreachtheirindivid-ualdreamstobecomethegreatestprofessionalsinthesalonindustry.Mangohasbecomeavibrantvillageinaworldoffallingrockstarsandfailingbusinesses.

Bypullingtogetherasateam,wehavecried,worried,sweated,pondered,analyzed,experimented,failed,suc-ceeded–butneverhesitatedorcompromisedonourresiliencetosticktotheteamapproachtomanagingourcul-ture.It’sabouttheculture,notaboutthepay.Team-basedpayistheenginethatdrivesourculturetrain.Thetrackisourstrategicpathtosuccess.Withoutanengineliketeam-basedpay,ourculturetrainwouldneverhavereachedthedestinationswehaveseenoverthepasteightyears.Wecontinuetostokethatenginewithourteam-basedpaypro-gramandhavemanynewdestinationstoreachintheyearsahead.

PatHeaneyMangoSalonRichmondandGlenAllen,Va.

Ihavebeenusingteam-basedpayconceptssince1997.IattendedanIncubator,andmyeyeswereopenedtothemissingpiecetogrowthandrealteamwork.Ithinkwereallycan’tcallourbusinessesateamifwefocusonrewardingtheindividualandnotthewholeorganization.Thesecon-ceptshaveallowedourcompanytogrowandexpandandalsomadeussustainablein“TheGreatRecession”withmoreprofit.Thatcanonlybehadbyeverybodyinvolvedintheteam-basedpayconcept.

IwouldshutdownmyoperationbeforeIdiditanyotherway.

Mark“Pardo”GonzalesMarkPardoHairSkinBodyAlbuquerque,NewMexico(sixlocations)

Team-basedpayallowsustorewardtherightbehaviorsinthecompany,notjustbusyserviccproviders,butrealteamplayers.Itreallygivesyoucontrolofyourbusinesstofore-castrevenueandprojections,tobudgetandtoplan.Youcanknowwhatyourpayrollwillbe;youcandogoalsetting;youcanplanyourpurchasesbetter.

Reallyunderstandingwhatthenumbersneedtobeishuge.Learningaboutteam-basedpayandhavingbenchmarksandadoptingitinmycompany,turnedthingsaround.

Thebiggestthingit’sdoneforusisithelpedusbuildabrand.Nowyoudon’thaveguestswhoareloyaltoateammember;they’reloyaltoyourbusiness.Team-basedpayhelpeduscreatethebrandwe’vealwaysdreamedof.

LisaCochran,CertifiedStrategiesCoachTheStudioLaurel,Miss.

white paper team-based pay - strategies...for example: one company that contracted strategies to...

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