Rethinking performance: How to build an output-based culture
For mid-market companies, few things are more frustrating than seeing misalignment between compensation, performance, and results. Employees are logging hours…but are they actually moving the business forward?
(If you don’t know yet, no problem: let’s talk RevOps. Don’t let anyone tell you you can’t get to that data.)
At Ballast, we help small and medium businesses overcome challenges and reach goals through clear financial data. You don’t know what really works until you truly take a look under the hood. Once you do, you can take confident action on the activities that truly move your business forward. And that extends to the actions your employees are taking.
One shift we sometimes recommend is moving from traditional time-based compensation toward a model that rewards measurable results. This shift is not right for all organizations and the decision to move towards an output-based model deserves thoughtful consideration. But for some organizations it can be game changing for both performance and culture.
In this post, we explore the benefits of an output-based performance culture, and how to begin building one in your organization (without sh*t completely hitting the fan).
First things first: what is an output-based culture?
It’s a culture where employee compensation and performance expectations are tied directly to outputs that drive profit and progress, rather than hours worked or roles held.
Instead of paying for time, the company is paying for results. For the employee, instead of getting paid for time, they’re getting paid for results.
Why make the shift: benefits of an output-based compensation model
1. It attracts and retains entrepreneurial talent
Top performers want autonomy and upside. When pay is tied to outputs, competitive and self-motivated people can earn more by doing great work, not just by waiting for a promotion or putting in the ‘face time’.
Many companies, leaders, and managers say they want driven, self-motivated talent but their compensation model is not structured to incent the right behavior, and subsequently it risks attracting the wrong type of employee. If you want high performers, pay in a way that rewards that type of behavior.
2. It aligns employee and company goals
This is huge. If you want to grow or produce any type of reliable success, you’re going to have to align activity with overall business goals.
Output-based compensation removes the disconnect between “what’s best for me” and “what’s best for the business.” Employees know exactly what they’re being measured on and how their efforts drive company success. Under this model, it’s easy for them to prioritize and take action.
3. It encourages innovation and efficiency
In a traditional model, there’s little reward for working smarter. In fact, in time-based compensation structures, employees are effectively incentivized to spend more time doing less. And if you think you’re avoiding or do not have this issue because your employees are salaried, not hourly, think again.
With output-based pay, employees are incentivized to improve systems, streamline work, balance efficiency with effectiveness, and eliminate waste – because doing so increases their own earning potential.
Output based compensation models empower employees!
4. It reduces micromanagement
If you’re in the weeds and want more time to strategize and drive toward your vision, you’re gonna love this one.
When expectations are clear and output is measurable, managers can stop hovering. Because when what you’re measuring is performance, it becomes simpler to understand if an employee is performing. Plus, performance conversations become more objective, and employees have more freedom in how they reach their goals.
This creates wins across your business, from efficiency to better management of resources to employee morale.
5. It identifies both high and low performers faster
The data speaks for itself. Output-based systems bring clarity to who’s delivering and who may need support or a different role.
And this isn’t just about ‘calling out’ the low performing folks in the organization. We have seen countless examples where moving to this new model highlights other, structural issues within the business that are resulting in low employee performance.
How to implement an output-based compensation model
Sometimes clients get freaked out when we suggest shifting to this type of model. It can feel unfamiliar or even harsh, and there are often worries that employees will feel undervalued or culture will suffer.
(In fact, we often find that the opposite is true.)
The good news is, you can ease into this. You don’t need to overhaul your entire compensation structure overnight. In fact, a phased, focused approach works best.
Start by identifying:
Roles where output is easiest to measure (e.g., sales, production, professional services)
Teams where performance is hard to manage or define
Opportunities to pilot this model in a controlled, low-risk way
From there, follow these steps:
Step 1: Define outputs by department/division/team
Every department (and yes the word ‘department’ feels very corporate, we get it, so apply this concept to product areas, teams, groups, etc.) produces something of value, though in many companies this isn’t explicitly measured. Start by asking:
What tangible results does this department or individual produce?
Can those results be tied to revenue, profit, or strategic goals?
How can we measure both quantity and quality of those results?
Examples:
Sales: Closed deals (by count), bookings (by dollar value), revenue generated (if there’s a delay between booking a contract and performing against the contract)
Marketing: Qualified leads (top of funnel), deals closed (bottom of funnel), campaigns launched, website activity
IT: Features shipped, system uptime
Customer success: Contract renewals, satisfaction scores
If a role produces no measurable output that contributes to profit or business goals, it’s worth asking whether the role is structured correctly (or needed at all).
Step 2: Create a motivational compensation plan
Output-based compensation doesn’t mean eliminating base salaries. In most cases, it means combining a baseline with variable incentives tied to performance.
The plan must offer genuine upside to motivate employees to produce more. (If the incremental gains are too small, employees may not bother.) But it also can’t be so extreme that it is unapproachable or feels unrealistic, especially if you’re implementing a structure like this for the first time. As always, data is your friend here.
Key principles:
The plan should offer real upside for top performers
It should also set realistic baselines based on historical performance
Make sure quality standards are built in (more is not always better)
Keep calculations simple – employees should be able to understand how their pay is determined
Decide whether to pay out monthly, quarterly, or semi-annually. More frequent payouts keep motivation high, but ensure your cash flow can support it.
The nerd corner:
Use data to make sure the plan works for both you, the employer, and the employee
You don’t need to get super in the weeds for an output-based compensation structure or culture to work, but for those of us who love data, here are some extra considerations:
Balancing gains: Decide what portion of each new unit of output goes to the employer vs. the employee. Variables include overhead, margin requirements, and the risk borne by the company.
Risk-reward trade offs: The higher the employer’s downside risk (e.g., expensive overhead or ramp-up costs), the more the employer might retain from incremental output. Conversely, if overhead is low and the employee is essentially "covering their own costs," they can be given a larger share.
Linear Plan Baseline: One simple approach to consider is dividing an employee’s base pay by their expected volume at standard working hours, then pay them that same rate per additional unit. This maintains consistent profit margins.
Efficiency standards: Even though the goal is to measure outputs, data on the average time spent to produce those outputs helps set realistic targets.
Use graphical examples: Take a look at how changes in the revenue split, overhead assumptions, or efficiency improvements affect profits and employee pay.
Step 3: Roll the plan out strategically
You don’t need to go firm-wide on Day 1. Start with a few departments or roles, track the data, and gather feedback. Adjust as needed before expanding.
Make sure your rollout includes:
Clear, transparent communication around the “why” and “how”
Training for managers and HR staff on how to measure outputs correctly and answer employee questions
Guardrails to protect quality, culture, and fairness
Encouraging employees to give regular feedback on the updated model
A plan for regular review and refinement
Realistic expectations for ROI timeline. (For many companies, noticeable improvements in profit margins and employee satisfaction may appear within 12–18 months of adoption, once the system is fully understood and embedded.)
We also recommend clearly communicating to your team what’s in it for them. A few examples:
Potential for much higher earnings based on personal output
Flexibility to work efficiently and enjoy more free time
Direct recognition for innovation or process improvements
A transparent framework that fosters trust
The result: a healthier business and culture
Done right, output-based cultures don’t just improve performance. They also build trust, reduce churn, and make growth more sustainable.
When we help our clients implement outcome-based compensation structures, they are able to:
Stretch team capacity without adding headcount
Attract high performers who want to be rewarded for real impact
Align everyone around the same goal: building a better, more profitable business
The nerd corner:
Measuring the effectiveness of your plan
Although regular feedback from your team and typical financial reporting will give you indicators of how your new compensation structure is working, digging into the data is often helpful. A few analyses we typically run for clients in this type of scenario:
Pro-forma analysis: Lay out projected profit, overhead, and compensation changes under the new model vs. the old model. Consider best-case, worst-case, and average scenarios.
Sensitivity analysis: Demonstrate how shifts in production volume or quality impact margin. This assures leadership that the model can adapt to changes.
Making changes to compensation structures can feel intimidating, but doing this right can result in a more profitable company, higher-performing team, and even improved culture and retention.
We’ve helped many of our clients confidently implement new compensation models based on data, as well as helped them clearly measure effectiveness.
If you’re interested in implementing an output-based performance model and would like to talk through what it might look like for you, we hope you’ll reach out.
