Updated: Mar 22, 2019
There are 4 basic kinds of compensations in your Aesthetics business.
1. Base (hourly or annual) salary
2. Short Term Incentive (STI) – commissions on sales monthly
3. Long Term Incentive (LTI) – annual bonuses / profit share / Equity
Understanding how to use these compensation levers to build the culture of your business is a critical step that many of our clients struggle with as they develop their compensation model resulting in high staff turnover. Its not uncommon that we see business owners struggle with one or more of the key components of overall compensation that provide balance and build sustainable and strong corporate culture.
How the 4 levers of compensation work for (or against) you.
1. Base Compensation – This is the easiest of the 4 to figure out. Go to Glassdoor or any other HR site and find out the range of salaries in your market for the position you need to fill. Generally, a qualified new hire should come in at the midpoint of the range leaving room for annual increases while staying within range. If you are working through developing your compensation model when you already have current staff on board you may find yourself in a situation where some of your employees are overpaid and other are underpaid. If that is the case, you need to classify your employees to establish a base line before moving forward.
Start by marking those staff members who are underpaid (below the average) by market standards with a “green flag”, those at the midpoint you can leave with no flag and those at the high end or above the range mark with a “Red Flag”.
Green flagged people should be in line for increases ASAP or risk them leaving at the first opportunity for more money easily found in the market.
Those at the midpoint of the compensation range should be marked for review against their Key Performance Indicators (KPI) like sales or customer satisfaction at the end of the year when raises are generally offered. It’s also important to provide all your employees with a set of individual and group KPI they are expected to deliver against and provide them with a feedback tool that tells them how they are performing on a weekly, monthly and annual basis vis a vis meeting those KPI and earning a raise.
Your Red Flag people can be a real challenge. Presumably Red Flagged employees are high performers and that’s why you are paying them top dollar. But in many cases, when held to the same KPI standards as their peers you may find they are not delivering enough to warrant premium compensation. Rest assured, if this is the case your team likely know it already and you probably have a friction point that is adversely affecting culture. Manage this challenge by asking Red Flags to take on additional responsibilities that places them in a different employee class with room to grow professionally and financially. If they are not willing to make the change then you should be looking to replace them with a team member who fits into your compensation model in such a way as to not disrupt culture with overly competitive employees, bruised egos and infighting.
2. Short Term Incentive (STI) – Virtually every client of ours has some form of STI compensation in place. Its reasonably standard that line employees will receive some form of incentive for making sales. It is important, however, to classify this kind of compensation correctly or risk being offside with “Practice of Medicine” regulations on a state by state basis where commission is often frowned upon. (Seek legal advice on paying commission for sales of medical treatments.)
STI is definitely a performance driver but you have to be careful not to create an imbalanced income opportunity for people who perceive themselves to be equal to their colleagues and yet don’t get the same pay at the end of the month. Of course, striking a balanced STI plan has its own traps as STI is inherently competitive. As a stand alone form of compensation STI be very destructive to a healthy work culture which is why we look to Long Term Incentives (LTI) to provide a team-based program that everyone shares in “relatively” equally. In its simplest form, LTI is used to compensate the team on its overall results and keep your employees focused on the personal benefits of teamwork. Remember “Teamwork Makes the Dreamwork!”
3. Long Term Incentive (LTI)– Bonusses, Profit Sharing, Equity. Each of these forms of LTI has a different use. Bonusses are a great way to drive team performance. Your bonus structure should be clearly defined (What do we need to do and how much do we get paid) and shared with staff so they understand and can monitor their personal and team performance towards hitting targets.
Profit share should be reserved for team members who have control for generating profit, i.e. P&L responsibility. It is not appropriate to pay team members a profit share if they don’t substantially control the costs that go into calculating profit. Employers shouldn’t hold employees accountable without giving them the ability to control the performance and when it comes to their own compensation there is no incentive in a profit sharing program if the employee doesn’t have substantial control of the costs that go into calculating profit.
Equity compensation should be reserved only for those situations where you are in VERY rapid growth mode and there is some reasonable expectation that there will be a liquidity event (sales of shares) within a 3-year period. This kind of compensation generally is made available to senior staff and executive who are critical to the long-term success of your organization. Seek the advice of a securities lawyer before going down this route as the securities regulations and standards will differ from state to state.
4. Benefits – Benefits are perhaps one of the strongest drivers of employee retention. Given the variety of benefits available finding some form of meaningful program can be a huge win for the company. Remember, “Your People Are Your Beauty Brand!” Keeping them happy and productive is critical. If cost is a big barrier, consider scaling back the program benefits (not too much) and reducing your LTI (not your STI) compensation as a partial offset.
On to Perks: Free treatments, Lasers, fillers etc. You “should” think of perks as perks, not as compensation. If you are hoping to pay someone with Botox, it’s just not a good idea – period. Here is a test you can apply to all your compensation planning. Ask yourself the simple question. Would you work for what you are offering your employees if you were in their situation? If you can’t say unequivocally yes, then what makes you think someone will want to come to work for you and not be looking around for the next better paying job ASAP?
More than money goes into the decision of where to work; things like commuting time, the physical environment, opportunities for growth are not to be ignored. What kind of boss you are and more will all factor into the decision to come to work and stay with you.
The 4 levers of compensation, Base, STI, LTI and Benefits to create performance incentives that drive your business while balancing them to creating the culture you want while positively affecting your HR brand, your ability to attract and retain quality staff and ultimately the customer experience you want to deliver. Remember “Your People are Your Beauty Brand”. If you back up an emotionally intelligent management style with a thoughtful and balanced compensation plan, people will flock top work for you, your turnover will drop drastically, your HR brand will improve dramatically, and your customer loyalty will go through the roof.
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Laura Lawrence - aka: The Beauty Agent, has more than 100,000 industry followers online. With experience in the Medical Aesthetics field across North America and as the founder of ONCALL Medical she has unique insight into the state of Medical Aesthetics H.R. everywhere on the continent. ONCALL Medical is the premier recruiting firm in North America specializing exclusively in Aesthetic Medicine.