For many years, service businesses have been shifting their compensation structures to a more performance-based system. The health club industry has been adapting this concept slowly and only to a limited level. Even though the recession caused more club owners to revise their pay concepts, most have not done so in a systematic manner.

Typically in the health club industry, most employees at the department head level and above receive salaries that account for 90 percent or more of their total compensation. They get a variety of benefits (health benefits with co-pays, club benefits, maybe 401(k) programs), but their actual remuneration is focused on the salary element. This setup implies a culture where all employees make best efforts but are not significantly rewarded nor punished by the results for the overall club and the specific department or area for which each is responsible.

Pay for performance programs should focus on creating either key performance indicators (KPIs) or key success factors (KSFs) for each of the important leaders in a club organization. This starts with the general manager and includes the various club department heads (e.g. fitness, sales, maintenance, programming, child care, front desk/reception, group exercise, housekeeping, aquatics, racquet sports, accounting, human resources, office management, retail, food and beverage, etc.). All leaders with decision-making power should have KPIs or KSFs. They need to be adjusted each year and tied to specific numbers and measurable goals. They should be mostly quantitative so the club owner or general manager can track them simultaneously with a department head.

These KPIs should be created at the same time as the club’s annual budget and approved before the start of each year. Often, they represent significant underlying assumptions that were used to create a club’s detailed monthly budget by department for the coming year. Obviously, this means that each is trackable and not subject to a judgment call.

Often, specific measures are created for each specific area. These measures typically include a mix of overall club measures (like the club’s bottom line or EBITDA) for a period or total membership levels as well as specific department goals. Typically, three to five measures are appropriate. Once the measures have been created and employees buy into them, the measures need to be monitored monthly. If you notice weaknesses, club operators should offer coaching that shows the tools a department head has to get back on track. One of the most powerful motivators for department heads (and above) is for them to see in the final budget a dollar line item that includes the total bonus amount assumed if the KPIs are achieved.