Q: How do I compensate my salespeople when I can't afford to pay a big base salary, equity counts for less than it used to, and the reps aren't making their numbers?
There are many ways to structure sales compensation. If the process is new to you, get a good book like Compensating New Sales Roles: How to Design Rewards That Work in Today's Selling Environment, by Jerome Colletti and Mary Fiss. Once you have a "comp plan" in place, there are basically two schools of thought on how to proceed in times like these. One is not to change the plan on principle. The other is to keep the basic plan intact but add incentives as needed to keep salespeople in the money.
Sure, you're desperate to cut costs right now, and we'll get to that in a minute. But should you use the comp plan as a way of dealing with the economy? Philosophically, it's not a great idea, says veteran salesman Steve Schmidt of Abraham Technical Services. "The temptation is to try to reduce sales compensation in real good times and to try to alter it again in bad times, but that creates instability," he explains. Schmidt, who currently employs 16 salespeople at his company, says that in 10 years of business he's never lost a single salesperson to the competition. "I believe the reason for this is that we have never changed the comp plan. Both my partner and I have been burned at past sales jobs, and we have staked our company on treating salespeople fairly and consistently."
Instead of changing the plan, consider a tactic that's worked well for the advertising sales force at the New York Times. A few years ago the daily newspaper created something it called a "push goal." The idea was to spur on the ad-sales teams when economic conditions changed dramatically. A flat bonus amount is paid to teams that hit a new goal, which is set higher or lower, depending on the external circumstances. "It was designed to motivate all teams where economic conditions had changed for the worse," says Anthony DiCio, who created the incentive bonus during his four years overseeing the 215-person Times ad-sales force as director of finance and administration. DiCio says he also created push goals for teams that met their original goals before year-end so that they would continue to strive to bring in new business.
But what about now? What if your cash flow is so low or sales are down so much that you feel you must change the comp plan? Be clear about what you're doing and why. Growing companies typically don't pay a big base salary -- maybe 40% of total compensation. So a move like cutting out the base could send your salespeople bounding for the door. But there are ways to conserve cash without penalizing good salespeople. Gary Artis, CEO of business consulting firm Artis & Associates Inc., in Charlotte, N.C., gave his four sales reps a choice this year: take the security of having a base salary or take more risk and ultimately make more money. The company now has two basic tracks: 100% commission and small salary plus commission. Within each track, the reps were asked to select their expected performance level. Reps who opted for 100% commission and who perform at the highest level stand to increase their pay by 25% this year because Artis also increased the commission rate they can earn. Salespeople can also take a draw (or a monthly advance against their commission checks).
If Artis's sales reps exceed their goals, there's no cap on their earnings. Artis says this year is only the second time he's changed the sales-comp plan in the company's 12-year history. "We had to take control," he says. "I just hope the salespeople will be honest with themselves and the company."
The Artis approach is not for the fainthearted. Doyle Miller of Optomec was greatly relieved when he didn't have to go with a commission-only plan for his two salespeople. An 11th-hour sale saved the day. "Don't take risks by putting people on 100% commission," warns Kellogg professor Andy Zoltners. "I just wouldn't do it. If you overincent salespeople to oversell, they're just going to piss off customers, and you might lose those customers forever."
Bottom line: before you start mucking with the plan, you have a choice to make, says Harvard Business School's Lassiter. "You have to decide whether you want to have conversations about compensation or booking business. I believe you should keep compensation simple and spend more time talking about how to get the orders. Others believe in a highly tunable pay system that motivates behavior. The debate is as old as the Bible."
Susan Greco is a senior writer at Inc. Editor Christopher Caggiano, contributor D. M. Osborne, and reporter Kate O'Sullivan also contributed to this story.
Please e-mail your comments to editors@inc.com.
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