Compensation Structure for a growing SME

Most start ups and established SMEs deploy the traditional hierarchal functional as their default structure without giving it a second thought.  The assumption is that the company has a great product that has been selling and will continue selling to the foreseeable future hence all the company needs is a great marketing and aggressive sales team.

One of the reasons why start ups and small businesses beat their more established rivals is their agility; their ability to make decisions on the fly with minimum red tape, ability to assemble rapid response team that is able to put forward a solution and many more. An example would be Bonfire Adventures that is able to market their destinations through current events such as the 1USD wedding, Snow in Nyahururu, Githeri Man and unveiling of SGR.

For sure the traditional functional structure is not equipped for the fast paced and challenging business environment that is in Africa. SMEs must strive to retain their agility and dynamism by deliberately designing their organizational and compensation structure to be more team focused and customer centric.

This may seem like venturing in untested waters given that traditional structures are very clear in terms of how employees are compensated. SMEs must quickly realize that parameters such as experience, Education Level, Age, Sex, race among other legacy parameters are outdated and don’t encourage staff productivity and company growth.

It’s only natural that a change in company structure would necessitate questions pertaining compensation; given that a good compensation structure is the foundation of a productive staff team and organizational growth. A good compensation structure must match the varying needs of the organization unique employees and must not be generic.

There are basically two compensation models that are used in any organizations; a salary model that is suitable to specialized workers such as accountants, IT professionals, procurement officer among others, while on the other hand there is the commission model that is geared towards sales agents.

Both of these models have their own disadvantage; workers on a fixed salary are paid regardless of company performance a scenario leading to laxity, while sales agents have erratic incomes with the company not in command of customer experience. More recently there has been the emergence of a hybrid model in which employees get a base rate plus commission or a base salary that gradually transits to commissions.

There is no one fits all compensation approach but SME must take the following into account;

No matter which compensation approach you choose, it’s essential to keep the following in mind:

SME must strive to establish commission based pay across the organization as it’s a sure way to ensure that the company grows.  Commission based pay doesn’t necessarily have to be pegged on volume of sales but can be pegged on Key performance indicators which are periodically evaluated and matched to employee pay. This can go a long way to improving staff productivity and company growth.

Compensation structure must ensure that it fosters growth and has a clear career path. Employees must be compensated for their individual and team effort and risk.

Another great test of a good compensation structure is its simplicity in terms of ability of all employees to understand how it works and how their actions would lead to success.

Finally SME must create a corresponding transparent culture that is needed to support the compensation structure. In case the company lands on an unexpected windfall and management would want to reward its employees. The reward must be implemented in good faith under the existing pay structure to avoid a fall out or mistrust.

All in all there are many other options for employee compensation; the idea is to know which options are there and how to customize them to your organization.