Forty-one percent of small businesses pay their employees just to show up for work, hurting their profitability, according to a new survey.

The survey of 1,000 small business owners in the U.S. by management consultancy George S. May International, also found that 45 percent of the small business owners say their companies aren’t profitable.

“Too many small businesses still reward employees for just showing up, for being a warm body everyday, when they should be paying them based on performance related to specific, measurable goals,” said Paul Rauseo, managing director of George S. May International. “You’re setting the stage to destroy profits when employees expect compensation for participation in collaborative activities, regardless of results.”

To improve profitability, Rauseo recommends that more small businesses use a pay-for-performance model. Initially limited to a small group of companies, the pay-for-performance concept has rapidly expanded over the past year as businesses look for ways to improve their operations. About 60 percent of small businesses claim to use the model, according to Rauseo, but only about 55 percent institute specific, measurable employee goals to make the system work.


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