How to Structure 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 appreciated and recognized for their efforts, it will speak volumes in measuring the overall success of your Presentation of Opportunities.

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?

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!

By Leslie Lyon, Spas2B



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