Losing a top performing employee not only means your business will have to incur the cost of hiring and training a new employee, but also poses other great risks: jeopardising relationships with current customers and erosion of employee morale.

7 Compensation Tactics To Help You Retain Your Top Employees

Employee dissatisfaction with their compensation is one of the main reasons for unforced employee turnover. Having a proper compensation plan is, therefore, important for retaining and motivating your top employees. In this post, we shall be looking at 7 compensation tactics that you can employ to retain your mission-critical employees.

  1. Mix the salary with incentives. Mixing salary with incentives is a sure way of increasing employee morale and productivity. The salary provides consistent income to the employee and compensates them for performing the duties required of them. Incentives, on the other hand, (which can be in the form of commissions and bonuses) motivate your employees to meet and exceed their goals by providing them with the opportunity to increase their earnings.

Pay the salary portion of compensation either monthly or by-monthly, and the incentive portion as soon as it’s feasible to do so after the goals are met. Quarterly incentives are more effective than annual ones, and monthly incentives are more effective than quarterly ones. How soon you pay employee incentives determines how motivating they are.

  1. Keep your incentive plan simple.The incentive bit of your compensation plan should measure no more than four performance factors. The plan should be easy enough for all the employees to grasp for you to achieve the desired results.


  1. Create SMART goals. These are Specific, Measurable, Ambitious, Realistic and Time-bound goals. For salespeople, establish monthly or annual revenue goals, or goals for new accounts opened. Customer service people can have goals for the ratio of compliments versus complaints, employees in accounts receivables can have their performance measured by how much outstanding revenue they collect above targets, For the employees in manufacturing, goals can be measured by the number of defect-free items manufactured.


Although team-based incentives are good for team cohesion, the majority of the incentives kitty should be directed towards the individual.

  1. Know what your competition is paying. To attract and retain top talent, you should ensure that you pay your employees as much as your competitors are paying or more. Do some studies at least every two years to determine the going rate for different positions and adjust your compensation plan accordingly.


  1. Pay based on the employee’s Geographic location. While the incentive plan should be the same for all employees regardless of the location they are working in, the salary portion of the salary should be adjusted to reflect the cost of living in specific areas. This will help prevent penalization of employees living in more expensive cities.


  1. Reward top performers with merit increases. Many companies will misallocate funds budgeted for annual merit increases by sharing it almost equally among all employees in a misguided attempt at making everyone happy. Merit increases should be prioritised towards star employees, and then satisfactory employees in that order. Employees who are not meeting performance expectations should not get increases.


  1. Give non-financial benefits. Other than cash, employees will also be motivated by other kinds of rewards and recognition. Annual trips for top performers, for instance, are a good alternative to cash rewards. These have the added benefit of building teamwork and camaraderie in addition to motivating employees.


Although several factors, including how you manage, develop and train your staff, affect your ability to retain top employees, paying well is one of the best ways of improving employee retention and increasing motivation.

Article suggested by Blue Collar People