You either pay your people, or they don’t come back. I don’t mean you should give them the paychecks
they earned. That’s a legal and ethical issue; you have a responsibility to manage payroll. Instead, I’m talking about those who generate the cash flow for your business by hooking up great products or services with buyers. I’m talking about compensating your sales team.
I consistently hear questions on sales, developing a high performance team of sales people, and compensation. Recently, Frederick P., one of our subscribers, asked: “In order to maximize the company's success, how should incentive pay for new sales be shared among the individual most responsible for the sale, the other sales people & sales manager who may have supported them, the engineering & estimating people who have helped and the rest of the organization?”
My expert reference regarding sales is Jack Daly. So, I posed the question to Jack.
Here's Jack Daly's response:
Frederick, your question is a good one yet has complexity due to the uniqueness of the selling processes in different industries and companies. Here is a more generic response that centers on the spirit of your inquiry.
The lion's share of incentive compensation fittingly belongs with the person bringing in the business. My general preference for such individuals is a low to no base pay, whereby the livelihood of the sales professional is determined by their success at generating business. As such, they are best aligned with the company and deserve the greater portion of incentive pay.
In most cases the other sales people should be primarily focused on their new business generation, so no incentive pay needed here on another sales person's production.
The Sales Manager incentive comp plan should be based on a % of the overall business generated by the sales team, and not a specific account.
As for engineering/estimators, a small portion of their pay can be reflective here, depending upon the amount of work involved.
I hope this proves to be useful.
- Jack Daly, Author of Best Seller Hyper Sales Growth
Here are some additional considerations from my experience:
- Do your sales quotas reflect history or vision? One company I worked with had a product line that they knew would soon expire. They smartly determined not to invest further in R&D and to continue to ride out the sales until obsolescence. This all sounded good until they set individual sales goals with history driven increases. Funny thing is, when you added all the sales quotas the total was 26% higher than the combined projected sales for the product line. Talk about being demotivated!
- Is there clarity in determining compensation? I recently had a comment from a CEO who created a sales compensation plan that offered a large bonus based on reaching a specified sales volume. One sales person made it to the compensation level but gross margin on the sales was only half historic levels. He was giving up margin to make the bonus. The CEO was furious and didn’t want to pay. No matter who you side with in this disagreement, this is an avoidable risk. Have clear governance for sales compensation. Do everything possible to avoid the appearance of “messing” with a sales person’s money. It’s better to pay as agreed, with no complaint, and to reset the comp structure quickly than it is to complain and drag out payment over dispute. In a past life, I’ve trained about a thousand sales people in hundreds of companies with thousands of products. The one obstacle that I’ve never (successfully) seen overcome is the wound of the perception that someone reached in your wallet and took your money.
- Are you promoting team or individual accomplishment? Either is appropriate but don’t promote one when you expect the other. Years ago, I worked with a company that had independently operating sales people yet called them a team. They were attempting to motivate the "team" with contests that included the efforts of more than the individual. Think through points of potential conflict.
Keep your compensation simple enough that it can be understood and governed based on a clear understanding of terms used like revenue, gross revenue, net profit, gross margin, etc. I find this is a big area of contention. Realize it takes time to build momentum in sales and consider the ramp up when it comes to your compensation plan. And, don’t be afraid to change comp plans if necessary. A best practice I’ve seen is to include a few examples for any new comp plan outlining how a person might be paid; remember to make the examples realistic.
Jack Daly thinks you better pay me, and I agree.
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