Jen L’Estrange, owner of Red Clover
Jen L’Estrange, Owner of Red Clover. — Red Clover

If you could create your own fantasy board of directors, who would be on it? CO— connects you with thought leaders from across the business spectrum and asks them to help solve your biggest business challenges. In this edition, we ask an expert about affordable ways to show employee appreciation.

As a business owner, it’s up to you to decide how you pay your employees. Variable pay is one option you might want to explore. What is variable pay and how can it help small businesses? Jen L’Estrange, Owner of Red Clover, answers that question…

Variable pay is a pay structure that can go up and down depending on the success of the business and the ability of an employee to meet certain targets. A sales commission, which is usually in the form of a stipend or percentage of what someone sells, is a great example of variable pay.

Another example of variable pay is a bonus, which can be short-term, such as a cash stipend for the employee of the month, or long-term, like a substantial cash award at the end of the year for an individual who has made a great impact on an organization. Here’s a look at the benefits of variable pay for your small business:

Allowing employees to share in rewards

Many of our clients struggle to attract top talent because they simply can’t compete with large businesses and usually offer below median wages. With a thoughtful and clearly communicated variable pay program, you can overcome this hurdle and reward employees as your business and profits grow. Your employees will be able to see how their behavior has a direct impact on their compensation.

As a business owner, it’s up to you to decide how you pay your employees. Variable pay is one option you might want to explore.

Cultivating a positive company culture

As long as your variable pay program is simple and easy to understand, it can do wonders for your company culture. It may motivate your employees to go above and beyond and work towards the same goals. If you’re looking for a way to differentiate yourself from larger organizations, a culture that rewards hard work through variable pay might be worthwhile.

Supporting compensation transparency

Compensation transparency can build trust between you and your employees. A variable pay structure that everyone knows about and understands shows that you’re committed to fair compensation for your workforce. If someone believes they are being paid fairly in relation to their peers, they’ll continue to be motivated and engaged. On the flip side, if they don’t believe that they are paid fairly relative to their colleagues, they may dial back on their performance and disengage.

Promoting a positive cash flow

Variable compensation plans may be set up to pay employees as the cash comes into the business. For example, commissions can be paid after invoices are paid and bonuses can be paid quarterly or annually based on revenue or profits that are already realized. This is huge if you’re a small business that doesn’t keep a lot of cash on hand. It also allows you to be more generous with employees than perhaps you could be if the payout was structured differently.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.