According to a recent survey of 1,000 small businesses in the United States by management consulting firm George S. May International Company, 41 percent of owners pay their employees just to show up and that model is killing profitability.

"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."

In fact, 45 percent of small businesses say they aren’t profitable. And the relationship between the compensation and profitability data isn’t a coincidence, according to Rauseo. "The similarity of those numbers shows how closely your compensation style and profitability are linked. Small businesses can no longer turn a blind eye to that connection. They need to shake off their complacency and commit to making real change in operational efficiencies," he said.

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, while not all (only 55 percent) institute the specific, measurable employee goals needed to make the system work.

"We tell clients to stop paying employees just to show up," Rauseo said. "Pay-for-performance doesn’t guarantee profitability, but it has advantages in a down economy. Now is the time to climb out of the cellar of economic despair and plan for profit. You can turn your business around – start by taking a long, hard look at your compensation practices."