When Seph Barnard decided to energize his sales staff last year, he created a familiar enough incentive: adding a commission to be calculated on top of the sales staff's salaries. But the step nearly destroyed esprit de corps at Barnard's company, Tape Resources Inc. (#426), which sells blank videotapes and audiotapes to businesses such as television stations and production companies. "Cracks started to appear in morale," recalls Barnard. "There was resentment over it. Tensions appeared in the office that we'd never had before."
A surprised Barnard junked the system, which had sparked resentment throughout the business. Still, that experience spurred him to rethink his compensation strategy and ultimately to institute a new incentive system that has rewarded teamwork--not to mention pushed sales up to $4.7 million last year, about 70% above 1996 sales.
Although Tape Resources sells a commodity--its most popular tapes, from manufacturers such as Sony, BASF, and Panasonic, carry price tags ranging from $10 to $25--the company has never competed on price, relying instead on service such as a guaranteed in-stock program and speedy delivery. Half of its dozen employees are salespeople, who work the phones from the company's office in Virginia Beach, Va., filling orders from repeat customers as well as from new ones corralled from direct-mail campaigns and trade-magazine advertising.
The commission system that started in July 1997 caused problems on a number of levels. Salespeople who once cooperated with one another became reluctant to spend time away from the phones, helping out on other tasks. They didn't like it when a colleague serviced a customer they had helped earlier--thereby taking the commission. "People got territorial over it," observes Barnard. Meanwhile, employees in shipping and other areas--who were not included in the commission plan--simply felt left out.
The spark that caused Barnard to reconsider his compensation system was a three-month period at the end of 1997 when the entire sales team worked together to win a sales contest sponsored by BASF. The award: a trip to Cancún. Having seen the entire sales staff rally around a common goal, Barnard resolved to spread the incentives for teamwork to the company's six other employees.
Barnard wanted an incentive program that worked in concert with the company's existing compensation formula, in which employees receive an extra month's pay at year's end if the company meets its financial targets. To be consistent, he added a monthly bonus, offering 10% extra pay if monthly sales are 20% above the previous year's level, 15% extra if sales are 30% higher, and 20% extra if sales are 40% higher. Sales rose at least 20% in four out of the first six months of this year--meaning that employees got a 10% bonus.
With all employees participating in the bonus, the divisions among people and departments evaporated. "We're all in this together," says David Durovy, vice president of sales, who points out that people in the shipping department who stay late to fulfill last-minute orders deliver the kind of customer service that distinguishes the company from its competitors. "In the shipping department, the orders they get out benefit them as well as the salespeople."
Barnard now circulates a daily report on sales to every employee, enabling each one to see how he or she is doing relative to the same period a year earlier. "On a slow day," he reports, "people will say, 'We haven't gotten an order from these customers in a while. Why don't we call them?"
An extra month's pay plus monthly bonuses can be expensive, and superstar salespeople may fare better under a commission system. But Barnard believes that his company's system accomplishes its intended purpose: helping create teamwork and pushing sales and service to higher levels. "It has provided me with tremendous peace of mind that the whole machine is working well," he adds.