Entrepreneurial Compensation

I saw a news spot recently on a company that refused to outsource labor overseas because they contended their American workers were more productive than offshore laborers. Another fascinating concept that was noted by the company was that their American workers contributed ideas for improvement and expansion to the overall operation, the value of which offset the added expense of the higher salary levels. Unfortunately, I only caught a portion of the news story and was unable to get the name of the company but I found it encouraging that an American company recognized the value of the brain power of its workers.

How many US companies still award monetary compensation to employees for money-saving or money-making ideas? Fewer than in years past, I’m sure. When jobs are sent offshore, the brain power of the laid-off employees is lost. Ideas go elsewhere. Offshore employees don’t care about the efficiency of operations six thousand miles away. They are hamsters in wheels. The company may gain in cost savings of compensation but they lose overall in collective productivity of the employee base as a whole.

Some companies recognize the value of the ideas that can be generated by employees. Many compensate employees according to the results of their ideas. A forward-thinking company will provide employees with room and resources to try out new ideas. Such companies also allow employees to fail without risk of losing their jobs. Ideas that succeed are benefits to the company and ideas that fail are also benefits in the form of lessons learned. Employees that can innovate freely and are backed up by their employer propel a company ahead of the competition.

In general, companies reward successful employees with bonuses or spot awards of money or trips. Bonuses can be quite hefty, often totaling 30-35% of total annual salary. If an employee makes $100,000 in annual salary, their bonus would be $30,000. But what if that employee came up with a new product idea that resulted in new profits for the company that totaled $3M? That $30,000 doesn’t look so hefty in comparison.

The newest compensation method is now to give a cut of the profits to innovative employees who come up with successful initiatives. This is a trend showing up in smaller to mid-sized companies that draw entrepreneurial types of employees who are accustomed to seizing upon ideas and running with them with little or no supervisory input.

Many of the dot com companies were built on this model. Some ideas succeeded spectacularly and made millionaires (EBay). Others bombed and disappeared in the dust (Netpliance). Savvy employers learned lessons from the dot com period and incorporated innovation with stability to improve operations, reward employees, and incubate new ideas from within.

If you are an entrepreneur at heart who enjoys going out on the limb, consider negotiating an entrepreneurial compensation package with your next employer rather than a bonus or high base salary. You may very well end up winning out in the end.

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