Crafting Effective Compensation Strategies for Business Success

As a business coach in Calgary, I’ve had countless conversations with clients about how to structure compensation to drive performance and growth. One recent discussion stands out, as it touched on aligning pay with skills, experience, and business goals—key elements for any thriving company. Let me walk you through the insights from that conversation, which I believe can help business owners rethink their approach to rewarding employees and partners.

Compensation should reflect the skill set and experience required for a job. For example, a highly skilled electrician with years of experience should command a higher hourly rate than someone less proficient. Why? Because proficiency translates to efficiency—more work done in less time. I explained this to a client by comparing two executive assistants: one paid $35 an hour who completes a task in one hour, versus a $20-an-hour assistant who takes two or three hours to do the same job. The higher-paid employee often delivers better value, assuming their skills align with the task.

We also explored different compensation structures—hourly wages, salaries, or commission-based models. One business owner I work with, Jeff in Edmonton, recently offered an electrician with sales experience a base salary of $3,500 a month plus a competitive commission. This structure allows the employee to influence their earnings through performance, which can be a powerful incentive. However, I cautioned that financial rewards alone don’t always motivate. Motivation often stems from deeper factors, like personal vision or dissatisfaction with the status quo, rather than just money. If an employee is content earning $60,000 a year and doesn’t aspire to more, no amount of potential commission will push them to strive for $100,000. It’s about their self-worth and belief in what they deserve.

This led to a fascinating discussion about compensating business partners. One client, Danielle, was grappling with how to reward a partner who was temporarily filling a key role to help her business get off the ground. She felt guilty and wanted to pay him extra, even though he was already an owner with a stake in the company’s success. I pointed out that this was her issue, not his—she was struggling to accept help without feeling the need to “pay it back.” Instead of giving him a cut from her pocket, I suggested a scalable solution: offer a commission for bringing in significant business, like a high-value client or deal. For instance, a 2-5% commission on the gross margin of a deal could work, but it should apply to anyone in a similar role, not just the partner. This keeps the structure fair and duplicatable, ensuring the business can grow without relying on one person’s goodwill.

Speaking of gross margin, we clarified some financial terms during our talk. Gross margin is simply the difference between what you sell a product or service for and what it costs to produce or deliver it. For example, if Jeff buys a piece of equipment for $100,000 and sells it for $150,000, his gross margin is $50,000—before overhead like rent or marketing. This distinction is critical when setting commissions, as they typically come from the gross margin, not the final profit after all expenses. Danielle’s business, which involves marking up contracted services like catering, often operates entirely on gross margin, making it easier to calculate fair commissions.

Finally, I challenged Danielle to shift her focus from marketing to sales. She’s a marketing machine, but without a solid sales process, her efforts weren’t translating into growth. I encouraged her to put on her “sales hat” and close deals to 10x her business. It’s a reminder that compensation strategies, while important, are just one piece of the puzzle. To succeed, you need to align your team’s efforts with clear systems for sales and operations.

These conversations reinforce why I love coaching businesses in Calgary—every challenge is a chance to refine strategies and unlock potential. Whether you’re structuring compensation or scaling your operations, it’s about aligning rewards with value and keeping your team focused on growth. If you’re ready to take your business to the next level, let’s connect and explore how tailored coaching can make it happen.

Ready to rethink your business strategy?
Contact Business Coaching Calgary, Kent Boehm 403.690.8363 to learn more.