Money Matters

Is Your Pay Structure The Problem?

How a salon chooses to pay its staff can make all the difference in employee retention, quality of service, profitability, and your ability to compete. After payroll, salon owners are often left only with their own tip money and revenue from services they've performed. Should you abandon the traditional commission structure for a pay system that rewards behaviors that are key to the salon's overall success?

Pay structures in the salon and spa have traditionally been fairly simple. Either an individual is a booth renter paying a set fee by the day or the week, or she is an employee who is paid an amount based on set criteria. For the last decade or more, the typical method of pay has been a 50% commission based on the gross amount of the service provided. However, this model is often now being abandoned for a more traditional corporate method of pay.

Commission Pay

The traditional salon setup promotes the concept of a single nail technician or stylist amassing a clientele and then gathering commissions based on the amount of monies collected from her services. For years now this is the way the salon culture has functioned. While the salon had always offered simple supplies, equipment, space, and an infrastructure supporting its employees, additional perks like benefits and paid vacation were not items that many salons could afford. In many ways this method of pay was favored by the salon’s staff. The professional beauty business had long been a cash enterprise with technicians and stylists counting on daily tips and tabulating their paychecks based on weekly services performed.

Commission pay at 50% was the standard method throughout the ’80s and ’90s. While this number seemed fair to all, it did not amount to a solid bottom line for the business owner. Often, in fact, after paying the bills, accounting for payroll, and deducting other unwanted financial burdens like taxes, retail shrinkage, and advertising expenses, salon owners were left with only their own tip money and revenue generated by working behind the chair or performing services themselves.

Tonya Edmonds, owner of Skin Savvy Spalon Express in Washington, D.C., pays 40%-50% commission on total gross sales and describes how it plays out in her business.

“I really didn’t know there were other options when I opened my salon about a year ago.We have four individual contractors and two employees and we each basically do our own thing,” says Edmonds. The salon is busy and her combination of independent contractors and employees are happy so Edmonds doesn’t see any reason to change right now.“My salon is a great place for everyone to be and the clients like the services they are receiving so the bottom line really isn’t of concern to me,” says Edmonds.

But the bottom line should be a concern to all salon owners who want to remain in business for the long haul. A simple run through the financial numbers shows that paying 50%-60% commission straight off the top of a facility’s gross earnings is a recipe for disaster. It is a given that a spa is deducting 50% commission from a $25 service. Add a 13.5% payroll burden, 4% for supplies, and 2% for credit card fees and the portion of revenues lost is already up to two-thirds.

Other hidden problems also accompany this method of pay. Obvious problems are that paying an employee the highest possible amount from the first day of employment leaves little room for creating incentives for future enhanced performance. Because it is human nature to always want more, it is a common occurrence for a technician to leave a salon for a mere couple of points higher commission.

Most of all, this overly simplistic method of determining pay doesn’t reward any behavior other than the rudimentary act of performing services. Important factors like client retention, pre-booking, add-on sales, and teamwork are all but forgotten in a commission pay system.

Salary-Based Pay Systems

A few years ago, a salary-based pay system swept through salons and spas across the country. It was marketed as “team-based pay” and promised a better method of rewarding employees that would emphasize contributing to the bottom line of the salon rather than merely building a clientele and focusing on one’s own self-interest. The hope was the system would elevate the beauty trade to new levels of professionalism while also allowing salon owners to manage individuals as a corporation would manage employees. On paper the system seemed like a winner.  However, many of the salons that adopted the practice later returned to commission-based pay or created another method of pay that stayed away from the team-based ideology.

Aline Richardson, general manager of Aline’s Salon, Day Spa & Wellness Centre in Prescott, Ariz., saw the transition to a salary-based pay and back to commission at her salon. “We typically start employees at an hourly wage and then work them into a 50% commission structure as they build up their clientele,” says Richardson.

About two years ago, however, the salon chose to shift to salary-based pay. “With 21 employees and no independent contractors, the salary-based model seemed ideal because we were mostly doing hair services. Our stylists had become mostly focused on their clients and we liked the idea of everyone working more as a team.Additionally, the salary model gave us more of a fixed payroll amount to budget for every month instead of commission, which is only based on the amount of service sales,” adds Richardson.

Aline’s made the switch to salary by offering a set hourly wage that was based on past average income, future projections, employee reviews, and the salon’s overall performance. “It didn’t work well for us,” says Richardson.“We have had some of our stylists for 12 or 13 years — the average employee stays five years — and the salary change had some of our best talent ready to leave. We found that we were paying out more than 50% of the average service cost of $42 anyway, but the pay was more evenly distributed among those who worked very hard and those who were just getting by.”

After several quarters of using the team-based pay system the salon returned to a straight commission model. “It works for us and our staff is much happier.Without a great staff you don’t have a salon,” adds Richardson.

Missy Cambell, manager of Beautz Inc., in Grand Forks, N.D., agrees that salary doesn’t keep the best workers. “Many times we will start employees on a salary base or a guaranteed hourly rate until they get established,” says Cambell. “The employees who really perform always welcome the change to commission because they can set the amount of their paycheck based on the amount of services performed.” The downside to salary, according to Cambell, lies in the fact that the amount ultimately earned by the technician doesn’t correspond to the amount of work she does in a pay period or during a shift.<p>Melinda Minton's CD-ROM,

How does a facility pay employees the commission they crave while keeping the establishment financially afloat? Some spa owners have taken the commission structure and gotten creative with pay. Tami Hatridge, manager of Circe Aveda Salon Spa Alexandria,Va., pays on a sliding scale. “We base our commission on how long the employee has been with us, how productive she is per hour, and amount of retail sold,” says Hatridge. With 32 employees, a commission scale seemed better to the management at Circe than a straight 50%.

Pay Structures That Make Dollars and Sense

Of the 30 salons polled for this article, most owners or managers didn’t understand how their pay system affected their salon’s overall business model. The standard response was, “We pay 50% commission like everyone else.”Most of those interviewed felt this meant that 50% of their expenses went to payroll costs. Even more of those interviewed commented that they had never really given thought to any other method of paying their staff.

What does a pay structure do to a salon’s business model? Not only does a facility’s bottom line directly correspond to the method by which it chooses to pay employees, it also has an impact on how the business is managed from day to day. For instance, a straight commission method of pay creates incentive for a tech to build a solo clientele. Given that a business can be adversely affected if several technicians leave taking their clients with them, this is the wrong message to send when offering employees incentives.

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