"Did you have a nice payday this week?" asks the spouse.

"I got an extra $900, but wait—how? Well, that's nice," says the team member.

When the team member goes to the farm the next day, he or she asks the supervisor, "Hey, I got an extra $900 this month. Can you tell me why or how?" 

"We produced more pigs! Great job," says the supervisor.

Was a full explanation provided? Was an opportunity lost? Because when the team member asked for notes on performance, he or she received positive but unspecific feedback from the supervisor.

This is an occurrence that could be happening with your team today in one way or another. Variable pay can be a great tool for recruitment, retention and driving overall company performance, or it can be one of the biggest money dumps if sloppily applied. The best part? With a complex compensation structure, it doesn't need to be hard, and it will drive employee well-being and company performance to a higher level. 

First, a lesson on variable compensation. This is commonly offered as a bonus, commission check or profit sharing. The intent behind it is that the extra compensation will drive better performance. In the swine industry, depending on how you provide value as a producer or vendor, you could see one or all three. 

The common problem is that the connection between the reward and the behavior is too poorly emphasized to drive the behavior, nor provide the feeling of a "reward" to the team member.

So, what can you do to avoid that pitfall on your farm? I've defined the five steps to success with variable compensation, and I've spelled them out here for you. By the end, I'll show you how you can beat the average, pay $5 more per hour, and increase revenue while doing it.

Step #1: Define your desired outcome 
Too often we get caught up editing our existing processes, with the end goal being a lagging metric that should mean we are weaning more pigs or improving marketing. Don't get me wrong, metrics are important! But they should contribute to or be used to evaluate the success of your end goal, not be the end goal itself.

Step #2 Process failure points
Write out your current processes that contribute to your overall end goal for that location or line of business. Write the process down and whether it's a continual process or a straight line, I want you to sort the steps of the process in two ways:

What you can do in this step is consider how you can review where changes in biological components (ex: feed, genetics, health measures) or technology can reduce the chance of failure or increase overall efficiency and ensure your return on talent is at its highest level. 

If it is a "people" process step, review the process expectation communication loop, quality and consistency at which it is performed. This may help you discover a training or coaching opportunity to improve the strength of the process itself and the value it holds.

This comes down to making sure your team is utilized at the point where they can make the highest impact and utilizing other products or services to support the efficiency of your process. 

Step #3: Matching the team with the process
We now have identified: Your end goal, current process and common points of failure. Now, compare and adjust your processes with the level of staffing you can reliably provide. Below is how you can look at the definition of "reliably."

For example, we will say your budget for the farm or location is for 10 employees, but you can consistently fill eight positions. So, the question is not "how do we fill those last two roles?" It is "how do we efficiently solve our problem with the eight team members we do have?" Keep in mind that the last two roles (employee #9 and #10) cost $4,100 in direct cost every time they are turned over. 

Begin by having an open discussion with your team on where they believe to be their strengths and weaknesses when carrying out your processes and daily tasks with eight team members. Do their weaknesses they addressed align with some of those you addressed in the step prior? Is there a way a biological resource (genetics, feed or health) or technology tool can be added to reduce stress and improve efficiency? This creates a collaborative effort between all members of the team in improving the efficiency of the operation with possible added resources to help your team perform at a high level in a leaner environment. 

Step #4: Guidance and accountability to the process
We now have identified: Your end goal, current process, common points of failure and made adjustments to fit your team to the process. Next, is the critical step by identifying a system of validation on how you are currently executing the process(es).

Training, morning huddles and quarterly managers' meetings all have their value in building your team and improving productivity, but one remains superior to the rest ... the ability to have transparency on the execution of the processes and the ability to coach (or receive coaching) as the workday unfolds. 

Don't believe me? Have you ever watched a football game where the coaching staff only came out to call plays, provide feedback and check the execution of the plays during timeouts and at the end of the quarter? Probably not. 

In order to achieve a high level of success there will need to be mutual transparency of process expectations and validation of the consistency and the quality they are being executed. This can be done through audit processes or live workflow platforms that are able to track the execution of the processes including: what happens, when it happens, who does it and when it is compliant. After all, you cannot incentivize what you don't know.

Step #5: People, process and variable pay
Now, we can put it all together and implement a successful variable pay plan. First, where will I find the additional expense for my payroll? In this example, you budgeted for 10 people originally but you have now adjusted your process execution to eight. 

In budgeting for 10 employees annually that make a value of $20/hr ($16/hr + payroll tax and benefits) at 45 hours per week, including five hours of overtime, that gives us a total of $494,000 we'll need to meet.

However, if we're budgeting for eight employees annually at $25/hr and 45 hours per week, that total also comes to $494,000. (Keep in mind that the $20 and $25 are the "whole" estimated cost with payroll tax and benefits.) 

This provides me with the flexibility to offer up to $5 an hour more if certain process execution metrics and end results (pigs weaned) are met. In doing this I may resolve not only a process execution issue but a retention one as well by offering a 10-20% pay increase for performance. 

Track the processes, correlate them to the outcome (does the strategy work?), reward my team for the processes they execute, and the end results they achieve. In doing so, I can encourage and incentivize behaviors that drive business results.

So there you have it: building a variable compensation strategy in five easy steps.

If you would like to explore more ways on how you can improve communication and process execution in your operations, please reach out via email.

Source: Barrett Eller, who is solely responsible for the information provided, and wholly owns the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.