Three Methods of Basing Payments

Without qualified, motivated employees, a small business can't succeed or achieve its goals. That's why, according to the University of South Carolina, companies need to offer equitable payments that reflect employees' performance and input. Companies formerly based payments mainly on employee education or experience, but modern payment techniques are varied. There are different methods for determining pay rates, but three are commonly used by small businesses.

Skills-Based Payment

  1. Small businesses may pay their employees according to the skill sets required to perform company tasks. Skills-based pay is often distributed through hourly wages or a weekly salary. The company places a monetary value on each of the skills that the employee uses during his work performance. For example, a data-entry worker has a specific set of skills that require higher pay than an uskilled position, such as an inner-office delivery person. Employees receiving a fixed salary are paid in the expectation that they will perform regular duties in an efficient, productive manner.

Performance-Based Payment

  1. With a performance-based payment method, the employee may or may not receive a salary but instead is compensated according to her individual achievements. This payment-basing method is used often in the sales arena: Salespersons may receive pay per unit sold or sales appointments made. Companies give these employees weekly, monthly or quarterly sales targets; after the targets are met, the worker is paid. The Melbourne Business School calls this type of remuneration output-based pay. Poor achievers are motivated to perform better by the possibility of higher pay. Star employees remain with the company because their efforts are sufficiently rewarded.

Payment Based on Multitasking Abilities

  1. When small businesses become fiscally leaner, the scope of work for individual employees increases. If companies expand an employee's role, it may offer pay based on the worker's multitasking abilities. If a small company's workforce shrinks and fewer people are doing more work, it may require an employee to take on additional tasks; if an employee already holds a specific role with the company, he may be resistant to these changes and added responsibilities. In this case, he may respond to incentives that pay him for adding additional tasks to his work roster. In this case, the employer compensates the employee for his multitasking abilities.

Other Measures

  1. Small businesses may use other measures for basing payments, such as bonuses assigned according to group achievements or pay based on the results of an annual job performance review. Quarterly and semiannual performance reviews may contribute to annual adjustments in an employee's pay. Companies may also consider other measures, such as an employee's recruiting and networking achievements. For example, if a sales team member attracts top salespeople to the company, he may receive a "headhunting" or recruiting bonus. Companies may offer bonuses to workers for establishing partnerships with new vendors or other important businesses. For managerial employees, a business may base pay on the manager's ability to work within budgets and schedules.