In an ideal world, your staff will approach their jobs with energy and enthusiasm every day and will be able to sleep peacefully at night, knowing that they are fairly compensated. This ideal world will give you a business with optimal staff retention, employees who give great service to loyal customers, and an ever-growing customer base. However, to act as if you lived in an ideal world is a risky business strategy, to say the least. The truth is, pay structure at your salon or spa has a strong effect on the motivation and job satisfaction of your employees, and ultimately - the long-term success of your business.
Because of the variety of employee roles and the different ways in which they support and generate revenue for your business, developing appropriate compensation plan can be quite a challenge. To make things as easy as possible, we recommend a general payment plan comprising three primary elements: base salary, commission-based remuneration and incentive / bonus compensation for achieving key goals, with the specific compensation model shaped according to employee roles and responsibilities. The goal should be to reward employees and tie their compensation to the value they have created for your business.
Base salary is earned either as per hourly wage rate or as a fixed salary. For a salon or spa owner, such as yourself, this represents a predetermined expense that does not change depending on how your business performs. This form of compensation gives employees a sense of security: no matter what, they can expect to take a fixed amount of money home. It is fairly common for employees in administrative, customer service and managerial roles to receive a significant portion of their compensation via base salary or wage.
Commission-based compensation is based on employees’ performance. From a financial perspective, it is a variable expense, with employee earning capacity tied directly to the generated revenue. For salon owners, this compensation model may be attractive as it is a strong motivating factor. You will however have to balance apportioning the salon’s “piece of the revenue pie” (needed to pay for operating expenses and your profits) with the employee “piece of the revenue pie” (needed to remunerate staff). It is not uncommon for therapists to either earn a significant portion or all of their compensation this way – via a combination of commissions on spa services and retail commissions.
Incentives and bonuses can come in many forms: cash, gym memberships, company-sponsored meals, supplementary training and a wide variety of other items. You can use them to further reward and motivate staff members once key milestones, such as meeting profitability, customer retention or media recognition targets, have been reached by your salon or spa. Incentives and bonuses can be specified in employment agreements or distributed at your discretion. It is not uncommon for spa management to receive contracted bonuses, supplementary to their base pay, based on the overall profitability of the business.
The way you devise the compensation plan in your salon or spa will directly and indirectly communicate your priorities and expectations to your staff. This can have a strong positive effect on staff motivation, especially if you demonstrate a clear and consistent connection between your expectations, their performance and the reward. The payment plan must strike a balance between making a healthy profit, staying competitive on the market and keeping your team motivated and loyal.
Just a few ideas we have found important to consider when crafting a compensation model:
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