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Presenting Your Staff Compensation Package BY LESLIE LYON Leslie Lyon began her career in the Health and Beauty Industry 25 years ago and today enjoys her profession as an International Consultant,

1 Presenting Your Staff Compensation Package BY LESLIE LYON Leslie Lyon began her career in the Health and Beauty Industry 25 years ago and today enjoys her profession as an International Consultant, Educator, Key Note Speaker, Published Columnist and Freelance Writer. Leslie is the President of Spas2b Inc., which is a full-service Spa Development, Consulting and Training Company based in Waterloo, Ontario, Canada. Leslie instructs the Spas2b Spa Director Certificate Courses and Management and Leadership Training. Courses range from 1 to 5 days and offer an energetic and enlightening mix of business systems and life strategies. Students travel from around the world to experience Leslie s unique style of teaching, described by some as mind, body, soul and spirit seminars. Spas2b was awarded Top Honours from Day Spa Magazine as the course of choice in their Real World Results Business Class Survey. Spas2b has just released 3 New Management Tools, including: 1. Financial Planning CD with 45 Excel Spreadsheets; 2. Staff Compensation DVD with Bonus Material; 3. Staff Contracts DVD with Bonus Material. You can find out more about Spas2b by contacting Leslie Lyon directly at , llyon@spas2b.com, or by visiting the website at Starting NOW, you must know how to Showcase and Sell both the monetary and non-monetary benefits of working at your Spa Over the past number of years, there has been a shift in drivers in the Spa Industry. Where the Employer used to have the upper hand when it came to recruiting, it now appears that the candidates looking for employment hold that position. Due to a number of variables, today s Spa Owners have fewer applicants to draw from you are all vying for the same contenders. It is also increasingly difficult to hold onto those individuals. Some reasons for this might be: 1. An increase in the number of entrepreneurs and new business openings; 2. Limited commitment on the part of the employee due to the re-focusing and greater emphasis on work-life balance; 3. Technology and globalization - New industry developments and globalization have brought a new meaning to competition; 4. General decline in human stability factors; lower levels of loyalty and respect for authority figures. What does this mean to you? In order to gain and retain the best contenders out there, you will have to aggressively sell your Spa and your Compensation Package as the best opportunity out there. You will have to make it ultimately clear to potential candidates that coming to work with you is the best choice possible. Eight Compensation Adjusters As the Owner, you must develop a Compensation Package that stays within Industry Standards while at the same time complements your overall business philosophy and financial capabilities. 1. Company Stability - Know what you can afford; 2. Company Philosophy - What constitutes a reward according to your guidelines? 3. Industry Standards What is acceptable in the marketplace? 4. Job Description Your reward system must be relative to your expectations; 5. Skills Performance Be able to gauge obvious and potential successes; 6. Expertise Experienced therapists are a dying breed, pay them special attention; 7. Tenure Loyalty should be strongly encouraged and rewarded; 8. Cost of Living It keeps going up and you ll need to keep up too. Design the Package before you re ready to hire; keep it easy to understand and administer; be consistent, and put it in writing. Why develop a Compensation Package? It gives your (potential) employees a clear understanding of what they are entitled to receive; What they need to accomplish to achieve higher compensation; Sends a message of continuity and professionalism; Decreases back lash over possible feeling of unfairness or favouritism; Management administration is more efficient and effective - improves record keeping. It is an essential component when recruiting Generally Accepted Methods of Payment 1. A Fixed Pay structure generally does not fluctuate with revenue. For example, a Spa Director s salary will not change (except in extenuating circumstances) whether the spa revenue increases or decreases. In the case of hourly wages, also considered fixed, although an employee s actually hourly wage may not vary with spa revenue generated, the total payout to the employee will vary, based on total hours worked. 34

3 You might choose a fixed pay structure if: You desire a higher level of control over your Employees; It is the most widely accepted form of pay for that position, in your area; You can afford the financial commitment and know that the long-term results will prove this to be the most desirable choice. 2. A Variable Pay structure fluctuates directly according to spa revenues being generated, and/or individual staff productivity levels, as in the case of Commission, Fee for Service and Incentive pay structures. You might choose a variable pay structure if: You have Independent Contractors versus Employees; You prefer a more cost-effective balance between revenue and expenses; You are not ready to commit to payroll dollars when revenues are low; It is the most widely accepted form of pay for that position, in your area. 3. Incentive Pay Structures play a primary role in your overall Compensation Package and can be deemed a fixed or variable pay structure depending on how you choose to set them up. Incentives may include: commission on retail; bonuses; profit sharing; staff service and product allotments; staff service and product discounts; service gratuities; training and education; paid time off, etc. You might choose incentives if: You need to stay ahead of the competition; You need to attract more potential candidates; You need to motivate existing employees; You wish to train and/or educate your employees; You must stimulate business. 4. A Combination Fixed and Variable pay structure is very common in the Spa industry, as you may see an hourly wage or annual salary supplemented with a Fee for Service, Service Commission and/or Employee Incentives. You may use a combination pay structure if: You wish to be competitive, or stay ahead of your competition in the marketplace; Your fixed pay is low and needs to be supplemented with variable incentives; You endorse both employee loyalty (fixed) and potential performance (variable); 5. Employee Benefits may include the core insurance benefits such as Health, Dental and Drug; Savings and Investment Plans; Worker s Compensation and Employment Insurance. Once established, these benefits may become fixed pay structures and will hold a high dollar value. You may choose employee benefits if: You can afford it; You take interest in your staff s well-being and quality of life; You wish to have an edge over your competition in gaining and retaining staff; You promote tenure, loyalty and longtime/life-time employee relationships. 6. Non Monetary Rewards or Opportunities of Employment are a very important component in your Compensation Package. Examples of non-monetary rewards are: Caring Culture with life-friendly policies; Higher Level Leadership; Employee Retention programs such as Mentoring and Shadowing; Focused Staff Development; Stretch Opportunities and Experiences; and special privileges. You may choose non-monetary rewards if: You are smart; You believe a pleasurable working environment gains and retains staff and clients; You wish to make your business and life more successful and more lucrative. Your ability to effectively combine these pay options to best suit staff needs will dictate the overall success of the Package. Structuring your Compensation Package Being able to find the right combination of rewards is fun! Your Compensation Package represents the whole of your choices based on the above outlined Generally Accepted Methods of Payment. Each have their place in the Spa industry and in fact your ability to effectively combine these pay options to suit the needs will dictate the overall success of the Package. No matter what kind of mix you choose, pay special attention to the non-monetary reward structure. It is important to understand that if staff can enjoy a caring culture, pleasurable work relationships and know that they are 36

4 Canada Distributed by : Elite International (Esthetic & Health) Canada Ltd. Toll free Vancouver Distributed by: Kinberg Enterprises Ltd. (604) info@kinberg.ca

5 appreciated and recognized for their efforts, it will speak volumes in measuring the overall success of your Presentation of Opportunities. Start developing your package here... See the Sample Staff Compensation Package below and begin filling it out as follows; Have a thorough understanding of each of the Compensation Adjusters above and how they impact your compensation decisions; Project total revenue: Service Revenue: Break down services into departments (facials; massage; body; nails, hair, etc.) and use this calculation: Total available hours open X average service price per department X number of rooms/stations in each department X projected utilization. Retail Revenue: Calculate retail revenues at your desired percentage of service revenue or gross revenue on the whole. Enter this information into your Profit and Loss and Cash Flow Statements. These two Financial Statements are crucial in helping you develop a sustainable Compensation Plan; Calculate what it will cost you to generate that revenue (Cost of Goods Sold/COGS), excluding service staff payroll for now. This might include: retail and cabin product purchases; miscellaneous studio supplies and whatever else impacts the cost of administering those services; Next, determine the service staff that will be required to produce that revenue and administer those services. How many will you need, in what areas of expertise? Considering the 8 Compensation Adjusters, begin attaching preliminary payroll dollars to each area of expertise (Estheticians; Massage Therapists; Nail Technicians, etc.). Once you understand what your potential annual revenue will be, only then will you be able to determine the level of service staff payroll dollars you are able to commit to. Your goal for your service staff payroll should be between 35-45% of your (projected) Gross Revenue; From there, work backwards to arrive at your mix of fixed and variable pay combinations. For example, if you are willing to offer a total payout of $35,000 for a particular area of expertise on an annual basis, start playing with different scenarios in order to determine how much of that amount will be fixed and how much will be variable; Wherever possible, be sure to include the value of all other (projected) supplementary methods of payment (Service or Product Allotments; Service Tips; Retail Commissions; Worker s Compensation, etc.) in order to arrive at an annual projected bottom line payout. Make it clear that this is not a promise, but a realistic projection, as accuracy levels will be affected by outside forces and the employee s level of contribution; To calculate administrative staff payroll (separate from your COGS Service staff payroll above, as this is generally considered an Operating Expense and entered under the Gross Profit line on your Profit and Loss Statement), begin by calculating your needs. Consider again the 8 Compensation Adjusters and reasonably determine how many staff you can afford and what you are able to pay them. Administrative staff incentive pays will also fall under Operating Expenses, even though they may be considered variable. The administrative staff payroll is calculated in conjunction with the rest of your business fixed costs, to determine the overall bottom line affordability of your plan; Once you have determined where you sit, create a sample Hard Copy of a Compensation Package Plan for presentation purposes. As a part of this presentation, you will also showcase the Non-Monetary opportunities of employment with your Spa; When the Employee is hired, prepare the completed Compensation Contract for your signatures. Update and have it re-signed as necessary. Remove any of the variable projections if you cannot promise them. Simply attach these projections as an Appendix outlining potential of the position; And most importantly, hold true to your promises. You now have a Presentation Package that will sell both the tangible and intangible benefits of working with your Spa! 38

7 Advantages of a Great Compensation Package: When it becomes known that employees can make good money and enjoy a pleasurable working environment at your Spa, you will begin at attract better candidates for the job; It can create an upward spiral of quality, yet costs fall because you need fewer people - everyone wins; The extra money and benefits that staff have the potential to enjoy are not gifts however - monitoring and rewarding your staff for higher productivity is how they make more; Good employees make you more money too - they make fewer mistakes, need less supervision and are more willing to do whatever it takes to see the business succeed. If you need more Management and Operational assistance with your Spa business, or would like to find out more about the New Spas2b Management Tools and Director Courses for 2007, be sure to check out the Sample Staff Compensation Contract Complete a Contract for each of your Employees. It may end up being pages long once you attach a copy of your Growth and Goals Plan; Job Descriptions; Evaluations, etc. Have fun with it and do it right! Employee Name: Address: Job Position: Title: Job Description: Original Employment Commencement Date: Employment Term: Employment Capacity: Length of Probationary Period: Compensation Range and Details: Term of Compensation: Start Date: End Date: Compensation Adjustment Policies: Overtime Policies: Vacation Policies: Your Compensation Particulars: 1. Fixed Pay 2. Variable Pay 3. Employee Incentives Bonus Profit Sharing Reward Programs Training & Development Program details Growth & Goals Plan Product and Service Allotments Employee Benefits Non-Monetary Opportunities of Employment Your Personal Evaluation Criteria and Compensation Adjusters: 1. Demonstrated Value Proven and Potential 2. Job Description 3. Industry Experience and Expertise 4. Job and People Skills 5. Tenure Probationary Review Information: Performance Evaluation Information: Additional Clauses: Date and Signatures. 40

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Ladies Night. Nourishing Overnight Creams Page 50. PLUS Annual Home Spa Gift Guide Accessing Risk Management Top Advanced Training Courses The Premier Spa Business Resource November 2007 dayspamagazine.com $5.00 Ladies Night Nourishing Overnight Creams Page 50 FIRST IMPRESSION Redesigning Reception Areas Page 106 PLUS Annual Home Spa Gift