Perception Is Reality: How to Determine the Best Compensation Plan

Compensation is everyone’s favorite topic, right? Maybe not so much. This week, two DePaul University professors, Dr. Marty Martin and Dr. Robert Greene, explored the complications that come along with setting compensation plans. The overall theme to these discussions is that there is no one size fits all solution. We wish there was a magic formula we could tell you but unfortunately, there isn’t. As a result, we invite you to review some of the best bits of information we took away from our compensation workshop.

CONSIDERATIONS – Food for thought.

Before you even begin the process of hiring, make sure you know who you are as an employer. Brand yourself in the marketplace. Have a general understanding of what you want to offer your team members.

Don’t fool yourself – most of the time compensation is not a secret. This doesn’t mean you should spill the beans to anyone who asks, but it is safe to assume your employees know what everyone makes.

Perception is reality. People will assume family members make more money, even if they don’t. Determine how transparent you are willing to be with this issue.

A good incentive plan pays out when it should and doesn’t when it shouldn’t. Are your incentive plans based on individual or company performance? If not, should they be? What are you hoping to have employees achieve?

When setting compensation for family members in the business, consider the following nuances:

  • If the family member is a shareholder, they will receive additional compensation in the form of their shareholder value.
  • What ‘above and beyond’ benefits does this family member receive based on the fact of being part of the owning family
  • Are you teaching entitlement as a result of the way next-gen family members are compensated and enter the business? Are the rules different for them vs. other employees?
  • What do you foresee as benefits and downsides of paying a family member the same as a non-family employee that has the exact same job position?

Consider what you are capable of paying and what you are willing to pay. Keep in mind that once you provide an individual with a base salary, oftentimes it cannot be taken back. Would you benefit from providing a moderate, yet competitive base salary with additional incentives based on performance or a higher base pay with basic incentives? A higher base pay can’t necessarily be controlled year to year – it essentially remains locked in. On the contrary, incentives based on performance can vary year to year. 

ACTIONS – Here is what you can do right now.

Create a Compensation Philosophy for your business. What is it? An articulated statement of your intentions in regards to pay and the design of your compensation plan. It might be in your head already, but you have to put it down in writing in order to make objective decisions instead of emotional ones.

Write a personalized compensation statement each year for your employee that spells out the incentives and bonuses they are receiving in addition to their base salary. Sometimes people just need a reminder!

It used to be hard to get salary data but now it can be found everywhere on the internet. So much so that there can be too much information with no clear range. What can you do? When reviewing salary comparisons from various websites, use the median to gauge the most accurate estimate. By using the median and avoiding the average, outliers are removed from the equation.

Conduct Retention Interviews in addition to Exit Interviews to gain a better understanding of why employees are staying with your company. For the best results, start this interview with an appreciation for all this employee has done for your company and simply ask “why have you decided to stay with us for 10 years?” Let them do the talking and ask them to tell you more when appropriate.

When it comes to perks and incentives, don’t assume that what you value is what others value. Consider what someone might value based on their age or occupation. Remember not to stereotype, but be aware that values are different based on the individual. A solution to this challenge can be implementing a Cafeteria Benefits plan. This type of structure provides the option to assign dollar values to certain benefits and let employees pick their benefits ‘a la carte’ up to a pre-determined value.


Again, we'd like to stress that there is no magical formula for setting salaries, perks or bonus programs. Many factors go into perfecting these elements and they all require careful consideration. We appreciate Marty and Bob for sharing their expertise with our community. They are happy to answer any questions you may have Marty Martin (compensation) or Bob Greene (market research).

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