Ask most business owners how they set pay and you'll hear some version of "we benchmark to market". That's a starting point, not a strategy.
Gallup's latest data puts Australian employee engagement at 21% for the three-year period ending 2025, down two points.
Globally, low engagement costs the economy around 10 trillion US dollars a year, roughly 9% of GDP. If you pay the market rate to do what the market does, you get the market result. Which, right now, is a workforce where four out of five people are not engaged.
Remuneration isn't a compliance exercise. It's one of the clearest signals you send about what your business values, who you reward, and why staying is better than leaving. Done well, it drives performance. Done lazily, it quietly funds your competitors' hiring.
Start with five remuneration principles, not a spreadsheet
Before you touch numbers, a rem or bonus plan needs to pass five tests.
- Fulfils value expectations. The dollar amount has to make sense for the role, responsibility and market. Underpay by design and you'll spend the saving three times over on recruitment.
- Authentic. Token gestures do more damage than no gesture at all. If an employee wins you a million dollars of work, a $20 lunch voucher is an insult, not a reward.
- Personalised. The demographics of your workforce have almost certainly shifted. A team that was mostly 40-plus a decade ago might now be in their 20s and 30s. Motivators change with them.
- Equitable. Take the bias and the guesswork out. If someone hits the goal, they know exactly what they get. Ambiguity at payout time is the fastest way to burn the trust a bonus is meant to build.
- Embedded in culture. People who join your business aren't only buying a salary. They're buying the vision. If your rem plan contradicts your culture, the culture loses.
Short-term versus long-term incentives: a simple framework
Most SME owners overcomplicate rem because they try to solve for everything in one plan. Separate it.
Short-term incentives
Answers the question: "If I succeed in the next 12 months, what do I get?" Usually cash. Bonuses, commissions, annual profit share. Paid close to the performance so the link between effort and reward is obvious.
Long-term incentives
Answers the question: "If I stay and help build this business over three to five years, what do I get?" This is where equity, share options and employee share schemes come in. They aren't really about cash. They're about ownership, alignment, and betting on where the business is going.
A useful exercise is to build a simple table with three role categories down the side, executives, managers, and standard employees, and short-term and long-term across the top. Fill in what success looks like for each cell, and what the reward is.
An employee reward and recognition trend worth following
Over the last decade, the best-performing businesses have moved away from purely individual metrics toward team-based ones. If you reward only individual output, you incentivise behaviour that can work against the business.
Non-financial incentives are underrated. In engagement surveys across SME clients, one theme comes up relentlessly: training. People want to feel they're progressing. Access to genuinely good training, clear development pathways and meaningful mentoring can outperform a cash bonus for many employees, at a fraction of the cost.
Profit share or ESOP? It depends on the business
Two questions we get constantly: "Should we do a profit share plan or an equity plan?" and "Which one actually retains people?"
Profit share suits high cash flow, lower capital growth businesses. Think architecture firms, engineering consultancies, accounting practices, medical practices. There's strong recurring cash flow and the business isn't necessarily building toward a valuation event. Skilled professionals in these businesses want a cut of what they're helping generate, now.
Equity and employee share schemes suit growth businesses where there is real capital growth on the table. The company is worth $1m today and the plan is to be worth $5m, $10m or more in five years. Employees buy in at a low price and share in the upside when there's an exit, a capital raise or a revaluation.
Profit share rewards what you produce this year. Equity rewards the long arc of building the business. A lot of SMEs need a mix, depending on role.
Where employee share plans can go wrong
The biggest mistake we see with ESS and share option plans isn't structural, it's sequencing. Businesses start with the tax concession and work backwards. "The ESS rules give us this benefit, how can we force-fit a plan around it?" You end up with an over-engineered structure that employees don't understand and can't get excited about. A plan that disengages the people it was supposed to reward.
Start with the art, then do the science. Answer these questions first. The tax structure and legal documents come last.
- What is the vision of the company?
- Who are you trying to reward and why?
- What does success look like in three to five years, and what do you want that person to walk away with if they help you get there?
The executive layer: set the destination, then work back
For senior leaders, long-term incentives should hang off a concrete three-to-five-year vision of the business in dollar terms. A revenue figure. An EBIT margin. A geographic expansion. Something specific. Then work back from that to what you need executives to drive today, and what they get if they deliver.
Don't copy generic metrics from another company. Your business has its own trajectory. Borrowed KPIs reward borrowed behaviour.
Talk to a business advisory team that designs rem plans properly
Engagement is a profitability issue, not just an HR issue. Get remuneration right for your business and you stop losing the people you spent $30,000 to $50,000 hiring, and you stop funding the agency fees to replace them.
BlueRock designs remuneration frameworks, bonus structures and employee share plans end-to-end. We start with what the business is actually trying to achieve, then build the tax and legal mechanics around it. If you're rebuilding your rem approach or setting up a share plan for the first time, get in touch via the form below.
