Do you pay each of your employees a set wage based on their experience and service? Do you reward them based on their contribution to the success of the business? Perhaps you use a combination of both. Discover the implications of your chosen reward structure. Discover how to improve your reward structure and your business performance simultaneously.

Traditionally, small businesses paid their employees a set wage or salary based on what was negotiated at interview, with cost of living increments each year. This is now changing as performance pay becomes a feature in remuneration packages. It is largely emulating what has happened in larger businesses over the last 20 years or so.

Flat salary or wage structures do not recognize excellent performance by employees and over-compensate employees delivering the bare minimum. This can turn off good employees who get frustrated at seeing their colleagues get the same money as them for much less effort. It also sends out the signal that below par performance is acceptable in the business.

Putting in a performance management structure, with pay related to performance against agreed objectives, can seriously impact your business performance for the better. Everyone in your business ought to have an element of performance pay as part of their compensation. In this way, you are rewarding the right behaviours. There should be no exceptions. Even the most mundane jobs can have an element of performance driven pay built into them.

So where do you start? The first thing you need to do is put formal written job descriptions in place for every job in the company, regardless of who is doing it right now. This should include the following headings:

Item 6 needs special attention. It must be done in a consultative fashion with each employee so that you are not asking an employee to do anything that is beyond their capabilities or just plain unreasonable. These goals should follow the acronym SMART; Specific; Measurable; Achievable; Realistic; and Time lined. They should be stretch goals which encourage employees to constantly improve their personal performance.

Once the job descriptions are in place, you must decide what the expected performance level for the job is; what is below par performance; and what is above par performance. This must be clearly communicated to each individual employee by their line manager. Then, you can agree a reward structure going forward based on each of these 3 performance measures.

Performance appraisals should be carried out regularly, usually at 3 month intervals. This gives each employee a chance to tell you how they think they have performed. You, or their line manager, can then inform them how the company perceives their performance. This gives the employee the opportunity to correct sub par performance before it gets out of hand or gives timely recognition of a job well done.

Although money is not supposed to be a motivator, you will be amazed at how focused employees become when their work ethic and application to their jobs begins to hit them in the pocket.

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