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This business coaching session explains the importance of performance based pay.

Results-Focused Training, Tools, and Workshops from Expert Business Coaches.

Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Lesson Nugget: Top performers will be less likely to stay committed to your business if they are not compensated for their efforts.
  • Lesson Nugget: Merit based pay can financially reward top performing employees by taking unearned wages from nonproductive employees.
  • Action Step: After a job is completed, provide customers with a quality control survey and pay a bonus according to employee performance.
  • Action Step: Provide a bonus structure that reflects an employee's longevity in your business.

-Would you be motivated to come to work knowing that the guy next to you is a lunatic and you're awesome? Let me show you this example. This is what happens when you don't have merit-based pay.

Meet Doug. Doug, he's one of these weightlifting instructors. So this is Doug. Doug is jacked, he's just a beautiful man. He is jacked, he's just got muscles upon muscles, he is ripped. He's got the six-pack going on, that's Doug. Doug is jacked.

Now also in the same place, you have Troy. And Troy, he loves snacks. Now both are personal trainers. This is Doug, Doug has a tattoo on his chest that says jacked. Troy, he is eating snacks.

Both of them, you say, guys, I'm going to pay you both 15 an hour. Doug has tons of customers, and when the customer doesn't show up, he's just flexing. Preacher curls, preacher curls, preacher curls, skull press, skull crushers, skull crushers. He's working it. He's constantly flexing all the time, he's eating protein shakes, he's just jacked.

And meanwhile, Troy's over here like, well, are you here for your training session? Yeah, cool. Let me lick my fingers, I was eating some Cheetos. Who's going to have more customers, Troy or Doug?

MAN: Doug.

-I've changed the names, but this scenario is actually true. This specific situation actually happened within the last four years of my life.

Now somebody-- before you send me that's racism, that's sexism, that's fat-ism, that's whatever-- the point is, you would not hire an overweight trainer, right?

Now this guy is jacked, and he is growing the business. I'm not exaggerating, this guy literally had 10 times as many people applying to work. People were applying, saying, I want to get physical fitness training from this guy, so check it out. Troy was actually making 18 an hour, and homie was making 15 an hour. True story, he's been here longer. Yeah, eating.

So the thing is, you want to make sure that you have a merit-based pay system that doesn't enable your version of Troy and Doug, because what happened to Doug? Did Doug want to stay around once he found out that Troy was making more money than him? No, he peaced out, started his own business. Is he killing it now? Yes. You see what I'm saying?

So you have to have a merit-based pay where you're doing-- you know like Robin Hood? The story of Robin Hood is he went around and he took money from the rich people and he gave to the poor. Remember, this is the Robin Hood story? He went to the rich people, and he took the money from the rich people and he gave to the poor people, right?

Merit-based pay is like this. Take from the poor people and give to the rich. Take from the poor performers and give it to the best performers. Merit-based pay is all about taking money from the poor performers and giving it to the best people.

You literally are saying, instead of paying you 18 an hour, I'm going to pay you 15 an hour, and I'm going to give those extra $3 an hour to the rich guy, thus making him 18 an hour while you only make 15. Does that make sense?


-And if you don't have merit-based pay in play, if you don't have that system, you cannot consistently motivate people. Southwest Airlines, UPS, Disney, every company that doesn't suck-- except for maybe some great vacuum companies, they might suck but still do this system-- but you have a merit-based pay system, you've got to have a merit-based pay system that motivates people to the right thing. Make sense?


CLAY: Any questions about that?

-No, I think this fits my business model. At least when you go out and do an audit, per audit you could get a certain amount of money, and then if you close the deal, you know?

-I would do it in three ways. After your job, I would do a quality control survey and based on how the customer reviews you, I would do a bonus based on reviews. Two, I would do a commission based on the actual sales, right? Then I would do a bonus based on longevity.

OK, so I would do a bonus based on longevity, I would do a commission based on sales, I would do also a bonus based on quality control.

-What do you mean by longevity?

-Life if a guy's been with you for four years and he just is killing it, I would pay him more hourly than anyone else because he's been there longer and he's good.

-So you wouldn't do per audit where--

-I would, but I'm saying--

-That would be commissions?

-Yeah, I might pay a guy $10 an hour, but I might pay him a $50 bonus if the customer's wowed, right? I might also pay him every time you land a deal, I'm going to pay you another 50% maybe, and then I'm also going to pay you another dollar per hour because you've been with me for over a year. Hear what I'm saying? Does that make sense?

-Yeah, it does.

-But if you don't have merit-based pay, that's the area that's not going to work. If you're watching this right now and you have a janitorial service that cleans your building, do merit-based pay. Say hey, if you get my bathrooms clean the right way, I'll give you a bonus for every week in a row it's done right. If you don't, I'm not going to.

If you have a guy mowing your lawn, find out a way-- hey, if you do it right, I'll give you bonus. If you don't, I'm not going to pay you. If you're building a house right now, say hey, if you get my house done on time, I'll give you a bonus. If not, I'm not going to pay or I'll pay less or whatever.

Come up with a merit-based pay system for everything. Make sense?

MAN: Yeah.

-Awesome, my friend. You are a great American.

-Thank you.


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