This is a partially baked thought, so I assume there are tons of holes in my logic, but I thought it needed some attention.  I firmly believe that compensation should not be static.  There is a floor, or salary component to everything we do.  A minimum understanding and commitment from the firm to the employee.  But I also believe a significant component should be flexible, even to the point that an unprofitable firm should budget for variable compensation.

I am all for job satisfaction and doing what you love and all that touchy-feely crap.  But at some point, we all recognize that everything comes down to money.  If a company makes a promise to the employee in the form of salary, that employee needs to make a commitment to the company.  I would not want just a commitment at that base minimum level, I want an employee to want the company to excel.  Because the employee wants the company to do well, that person should want to kick ass in what they do.  That commitment has to be rewarded.

Employees should treat the company as if it were their own.  I want them to feel part of the organization as if it were a family.  The company’s success is their own.  If the company succeeds, so should they.  But what if you kick ass all year only to fail or the product fails?  We live in a culture that only rewards accomplishments.  As far as promotions go, I would agree.  But there has to be a reward for effort.  You have to encourage your people to embrace the team, to devote themselves to the effort.  If we encourage people to take risks, it seems wrong to penalize them for giving it their best.  And this is where I think effort based compensation can play a part.  I want my people devoted, but not fearful of taking a risk.  Someone who plays it safe and doesn’t push the limit is no good to me.  It’s like I tell people skiing, if you don’t wipe out at least once a day while on the mountain, you haven’t been pushing yourself hard enough.

People would probably accept a lower overall base salary knowing that there was a non-profitability based component based on how hard they tried.  At the very least you encourage people to feel invested in the company, reward them when they do, and have a mechanism to reflect those that only skate by.  Skaters aren’t necessarily bad, they sometimes serve a pupose.  But those that excel want to see a difference.  In fact, the effort based component should be made public within the company.  No?

I would define a fair compensation package as below.  I think effort counts

• Salary = Compensation for doing your job
• Bonus = How hard you work, how much you go the extra mile (not based on profitability)
• Profit sharing = Everyone should share if the company makes money
• Equity = Based on performance or an individual’s direct contribution to success