The philosophy of building a leadership teams goes beyond numbers & spreadsheets or hiring & training. It's about giving energy to dreams, igniting innovation with outstanding contributors to your vision and nurturing an environment where each individual feels valued, empowered, and aligned to the high standards and quality of your core values.
Defined leadership can be like a light that guides a business through stormy seas. When leadership roles are nourished, It can feel like a comforting embrace that only thoughtful wisdom can feel like. Conversely, lack of leadership can feel like a vice grip on you, or even worse… play out like a free-for-all and create the gnawing feeling of inequity among the ranks.
This is why, when you find a great leader who innately celebrates others or pours into their roles by showing deep commitment to your brand and the members they're responsible for, you should move towards designing a leadership compensation structure that paves the path to creative compensation concepts that flows towards higher levels of leadership skill and increased responsibility. Leadership compensation not only aligns the right rewards to the people getting things done, operationally and culturally. It also becomes the format for advanced growth paths above and beyond the normal salon jobs.
Recognition of these contributors on your teams is crucial to manifesting a leadership brand…and that’s something to strive for. Undefined leadership compensation structure that doesn’t have the necessary communication elements like contracts and task lists can be a boulder-size obstacle for business owners trying to develop teams of company caretakers and could potentially lead to miscommunication, resentment and unresolvable discord between management teams, ownership teams, income-producing teams non-income-producing teams.
Leadership Compensation is so much more than just a financial transaction or a means to pay someone. It requires an artful eye to have the recognition of how these incredible leaders bring that special sauce and commitment to the shared vision. What you leverage and pay for is their ability to bring this special value to the core of your company culture. Well thought out and creative compensation concepts can help you to correct the balance between just continually adding more to the plate without measuring contribution vs. compensating and rewarding in goal-oriented and meaningful ways.
In our extensive work of creating customized leadership compensation structures, we’ve had the opportunity to bring to life a few methods that can help you, the business owner, launch your own leadership compensation structure. Here’s some filters that we recommend keeping in mind as you build out your strategies:
- Identify the value that someone can contribute to your brand and team.
- Configure and budget how to scale the compensation in these roles for years to come.
- Use creative methods to customize compensation wherever possible.
- Consult your POS systems so you can use their calculation functions for any and all compensation exceptions. This helps tremendously to make it easier.
- Work with a compensation coach that’s well versed in this type of language.
Here's how these 10 creative compensation methodologies can be defined as a framework of compensation selections, as well as guidance on when to use them, how to use them and why it could matter to your team and company:
Method 1. Leadership Hourly Rate
- What is it? A designated hourly rate for time spent on essential leadership responsibilities. This is the most common and easy to track. We recommend that you categorize what type of leader they are…meaning are they producing income (aka income-producing leaders) or support team leaders (aka non-income producing leaders) This will dramatically alter the list of tasks.
- When to use it? For straightforward tasks that can have a time measured, mentorship or coaching hours or other non-revenue tasks.
- How to pay out? Regular hourly payroll, separate from service production. Have a separate clocking in codes for admin hours.
- Why does it matter? It recognizes and tracks every moment a leader invests towards task completion as well as creates a stable budget for the owner. This type of pay is easy to scale.
Method 2. Per-Task Rates
- What is it? Compensation for specific tasks or projects.
- When to use it? For specialized responsibilities that require distinct focus and speciality. This type of pay is easy to contract on a work-scope agreement, easy to negotiate and easy to manage responsibility.
- How to pay out? As a fixed rate upon completion of the task. Or not, if not completed
- Why does it matter? It can isolate certain skills and remove not yet refined skills. Its easy to continue to dole out responsibilities in a mindful way that appreciates the expertise of the leader.
Method 3. 2nd Layer Salaries
- What is it? Additional salary increments that are set based on billable hourly rates. These are 2nd layer because they’re itemized differently on pay stubs and kept separated from other compensation categories.
- When to use it? To offer stability, acknowledge long-term commitments and best to use them with leaders who are very self-driven, limitless in their offering of time and energy.
- How to pay it out? Weekly, monthly, or quarterly, in alignment with terms of project completion and set quotas.
- Why does it matter? It fosters the sense of stability and limitless contribution for leaders who will stop at nothing to get the job done.
Method 4. Quota Driven Bonuses
- What is it? Timed or spot bonuses tied to achieving specific targets or quotas.
- When to use it? To incentivize the accomplishment of key business objectives.
- How to pay it out? Upon reaching the predetermined goals, the bonus will be calculated fairly using established compensation guidelines. Best if each promotion is pre-planned in collaboration with the leader and assessed with your business coach
- Why does it matter? It aligns the efforts of leaders with the growth of the business, sparking a shared pursuit of excellence. It also incentivizes in a bigger way.
Method 5. Sub-Team Commission Override Based on Performance
- What is it? A percentage of commission that leaders earn from the performance of their assigned sub-teams. Example: An internal salon trainer is assigned 3 new hires to onboard, train and launch. From the time of launch, a small commission override will be paid to salon trainers for a period of time.
- When to use it? To encourage mentoring and growth within sub-teams. It also helps the sub-teams of juniors feel like they have a go-to person. This also alleviates the owners from doing all of the training. (Warning: Be sure the salon trainer has the ability to train in accordance with your brand vision.)
- How to pay it out? % calculated based on the specific performance metrics of the sub-teams for a duration of 3 -6 months during the launch period. 1-3 of the sub team is the norm. But get creative.
- Why does it matter? It fosters collaboration and creates a chain of empowerment, turning individuals into teams and teams into thriving ecosystems. This leadership style of pay also offers tremendous “leadership training” organically.
Method 6. Gross Retail Commission Overrides
- What is it? An additional commission that leaders receive from “total salon” or “total team” retail sales separate from their individual retail sales performance.
- When to use it? To motivate leaders in steering retail strategies, doing inventory and driving retail sales.
- How to pay it out? Calculated as a percentage of gross retail revenue of total salon performance or a sub-team's performance.
- Why does it matter? It recognizes the creativity and innovation leaders bring to the retail landscape and a vibrant marketplace inside of your salons. Best when you select the best retailers in your company.
Method 7. Annual Profit Share Bonuses
- What is it? A creative profit-sharing plan is a bonus or retirement plan (deferred profit-sharing plan) that gives employees a share in the profits of a company. It can be paid out in quarterly or annual earnings. Base the amounts to be paid in profits of the business, how the leader’s contribution by multiple measurables like level of contribution, unique skills sets and the role they play within the company.
- When to use it? Commonly used as a deferred retirement plan as a means to accumulate shares in the company. It also can be modified to fit the beauty industry as a means to give high leaders a way to have some minimal ownership as a way to compensate them for their efforts and expertise.
- How to pay it out? As a payout after a set period of time. There are guidelines to follow if this is set up as a deferred retirement (seek a professional financial planner for this) or as a quarter and year-end bonus. Again, refer to a coach or professional for help.
- Why does it matter? This compensation plan gives the leader/employee a strong sense of ownership responsibility in the business. It also gives them a sense of career control. It also aligns your leaders into the business core objectives.
Method 8. Educator Hours Based on Billable Hourly Rates
- What is it? Payment for designated educators and trainers for their hours spent educating or training others on your team.
- When to use it? When leaders are imparting knowledge and skills. This is one of the great introductory roles into becoming a more advanced leader.
- How to pay it out? Establish 1.) a range of hourly rates for levels of qualifications 2.)what the company can afford to pay 3.)the amount of hours that the business needs in training or onboarding. One method of calculating the hourly rate is to base on the educator's billable hours production dedicated to education. Work with a coach to help you do this before launching. Mistakes in compensation are always destructive to building trust with your team.
- Why does it matter? This is one of the easiest gateways to begin exploring the concept of leadership in your business. It highlights the expertise leaders share. It leverages your internal team to build a flowing pipeline of new hires/trainees. It nurtures a legacy of knowledge and professional evolution. It removes some of the burden the business owners bear as the main trainer.
Method 9. Partial Owner Shares
- What is it? An ownership stake of the business, partially or any ratio determined.
- When to use it? To recognize exceptional commitment by an employee on your team. It also aligns long-term interests of the individual to your long term goals and brings a fresh perspective to your ability to scale.
- How to pay it out? This is a process that would need to involve professionals who are well versed in the legal parameters of what this would look like. Through legal agreements and working with a coach who could help define how to balance shared ownership, you would build out the partnership and could end up working out day-to-day.
- Why does it matter? It transforms leaders who’ve devoted their careers to the growth of your company, into partners, forging a deeper connection with the business's journey.
Method 10. Expense Reimbursement or Advanced Level Benefits
- What is it? Coverage of specific and additional expense items, like company cars, travel expenses or higher level lifestyle support or the more generous provision of advanced benefits outside of the normal benefits that offer to the rest of your team.
- When to use it? This style of leadership compensation is usually tax friendly to some degree. (Consult with your CPA before offering this) So, to use this method would keep your payroll expense more manageable. This is a great place to start with Leadership Compensation. This method also has the added gain of providing support to leaders in their responsibilities and overall well-being.
- How to pay it out? This type of pay can be a regularly scheduled amount or it could be on-demand, based on the nature of the expenses or benefits. Consider a Benefits Wallet Concept with layers of benefits paid at multiple levels.
- Why does it matter? This is a very equitable method of compensation and gives the business owner a way of paying that hits the target of fulfillment for the employee. The benefits could feel like it has more value than the actual dollar cost of the benefit/expense.
In the world of small businesses and salons, leaders are not just people in positions. They’re your 1.) managers of mindset 2.) curators of culture 3.) administrators of action 4.) delegators of duties and 5.) organizers of overall operations … all while nurturing relationships and inspiring artistry within the relationship dynamics in your teams and clientele.
For that reason, your leadership compensation strategies need to be more than just financial mechanics. When designed for the right players, creative compensation methods can be a language of appreciation which incentives and aligns with your company for long term career paths and incredibly fulfilling careers. When business owners choose to compensate their leadership teams in ways that can be an expression of core values, core principles and long term vision, it creates manifestation of one of the biggest targets any business owner has…which is to set up a business, train a team, and somewhat step away from their business all while earning continual income from profits.
Use these scalable compensation methods to give you a unique advantage in the marketplace. Customize the degree of creativity in how you set your company apart in a sea of compensation conformity. In embracing these tailored compensation strategies and doing the hard work of building these compensation systems into your business, you're not just paying your leaders; you’re rewarding contributions…you're investing in a legacy of innovation… and you're empowering a group of people that will become your core internal support network (this is essential to scaling)... and in the most magical ways manifesting leadership autonomy with true intention. Remember to always lead well my friends.
About the Author: Nikki Le is a business coach/consultant specializing in business systems, compensation, pricing, career coaching, personal development and establishing leadership team infrastructure. She's the principal at Nikki Le Consultancy, a coaching and education firm centering around employer advocacy, organizational structure, recruitment marketing, modern hiring practices and digital onboarding systems. Nikki's passionate purpose is bridging relational work dynamics between managers and employees, creating future generations of wealth in salons and elevating business, career and personal development education. She's been an educator, trainer, mentor and advocate to thousands of salon professionals, at every level, for numerous beauty brands. Nikki is a lifelong student of all things psychology, communications, NLP, leadership, self-help and business since her early days at George Mason University. She's a devoted mom of two boys, Gavin and Niko and loving dog mom to her rescue doggies Bear and Steely. She lives in Virginia where she writes, teaches business and creates online courses for her online business academy www.statementsstrong.com
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