How to Fix Your Compensation Plan (So It Actually Drives Results)
- Justine Risenhoover
- 2 days ago
- 2 min read
by Justine Risenhoover | Apr 2026
Most compensation plans are built with good intentions… but they miss the mark in one critical way:
They reward activity instead of outcomes.
And when that happens, you don’t get performance—you get motion. Busy teams, missed goals, and frustration on both sides.
If you want your compensation plan to actually move the business forward, it’s time to flip the model.
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Start With What Actually Matters
Your compensation plan should reflect what success looks like for your business—not just what people are doing day-to-day.
A simple rule:
Every bonus should tie directly to your top 3 company goals for the year.
If a goal isn’t important enough to impact compensation, it’s probably not a true priority.
This alignment does two things:
Keeps your team focused on what moves the needle
Eliminates confusion about what “good performance” actually means
Balance Company and Individual Performance
One of the biggest mistakes we see is over-weighting individual performance.
Yes, individual effort matters—but no one succeeds in a vacuum.
That’s why we recommend a 50/50 structure:
50% based on company results
50% based on individual results
This creates shared accountability. Your team wins together, not just independently.
Set a Real Performance Threshold
Not all performance should be rewarded equally.
If someone only hits half their goals, should they still get paid out?
We don’t think so.
A strong plan includes a clear floor:
Below 70% achievement → $0 payout
70–99% → prorated payout
100%+ → full payout (and potentially accelerators)
This reinforces that bonuses are earned—not expected.
Make the Math Transparent
If your employees don’t understand how their bonus is calculated, your plan is already broken.
Compensation should never feel like a mystery.
We recommend using a clear Target Earning Potential (TEP): TEP = Base Salary + Target Bonus
Then go one step further:
Show them the exact formula.
When people can see how effort turns into earnings, you create trust—and motivation.
Keep It Simple and Measurable
More goals do not equal better performance.
In fact, the opposite is usually true.
Stick to:
3 core goals
3 measurable outcomes per goal
That’s it.
If your team can’t quickly explain what they’re being measured on, the system is too complex.
Ensure Consistency and Fairness
Finally, one of the most overlooked elements:
Grade company and individual performance the same way.
If one side feels subjective and the other feels rigid, your payouts will feel unfair—no matter how good the plan looks on paper.
Consistency builds credibility. And credibility is everything when it comes to compensation.
The Bottom Line
A strong compensation plan should:
Drive outcomes, not activity
Align with company priorities
Be simple, transparent, and fair
Motivate your team—not confuse them
At ImpactHR, we work with growing companies every day who are trying to get this right.
Because the truth is:
Your compensation plan isn’t just about pay—it’s about performance, culture, and trust.
And when it’s built correctly, it becomes one of the most powerful tools in your business.
Book a 20-minute intro call to see if it’s a fit.
📞 (801) 592-5028