Jamba Juice, which ended its first year with the new bonus system in September, not only met its net-income goal but quadrupled it. "In fairness, when you're talking about numbers as small as our plan number was, it's not as impressive," says Clayton. "But considering that the best Jamba had ever done was break even, it's pretty significant."
"Our sales are off. Way off. Maybe every one of my employees should be selling?"
When revenues are down, some CEOs feel that everybody should bring in sales, from the accounting clerk to the receptionist. If that is the case, then why not put everybody on commission? That's exactly what smart growing companies are doing, says Jorgensen. "It used to be that only the salespeople were incentivized on sales. Now we're seeing it with customer service, purchasing, collections -- because it's all tied to the customer."
Jennifer Gilbert loves that idea. Gilbert is the CEO of Save the Date, a $22-million event-planning company in New York City. The company's sales soured along with the economy in early 2001 and worsened further after September 11. As Gilbert watched sales decrease, she decided she'd better shrink her payroll expenses. "We had some very high-salaried people, and normally they'd be worth every penny," she says. "But now I can't afford them unless they're bringing in sales."
In the fall of 2001, Gilbert cut everyone's salary to a lower base with increased bonus potential. Her employees are divided into teams that include a salesperson, production people, and administrative staff. She sets quarterly sales goals for each team, and if they hit their goals, everybody on the team makes money. She also sets individual sales goals for her on-site event staffers and pays them commissions when they sell clients additional services, such as entertainment, decor, transportation, or registration assistance.
The new system has helped Gilbert achieve four things. First, she decreased her fixed salary costs. Second, employees work faster. "Everybody is more aggressive, getting things done and moving on to the next thing," she says. Third, unproductive employees departed. Four staffers left the company because they either couldn't -- or wouldn't -- sell. "But my attitude is, If you're not helping to grow the business right now, then we don't need you," she says. (The company has 8 employees, down from a high of 15.) Finally, her employees are so much more productive that Gilbert is convinced that her new comp system is the reason the business has survived. "Many companies like ours have gone under," she says. "Our sales are flat, but we're doing it with 40% less staff, so no matter what, I'm ahead."
"We're moving to a culture where the best performers get the best rewards."
--Paul Clayton, CEO of Jamba Juice
Of course, many companies would find it difficult to follow Gilbert's example. It might be easier to mimic what Marion McGovern has done. McGovern is the CEO of M Squared Consulting, a San Francisco-based service that brokers engagements for independent consultants. Rather than placing all her employees on commission, McGovern is offering incentives to employees who support her salespeople.
In August 2000, when McGovern was drafting M Squared's 2001 compensation plan, things were looking pretty rosy. Despite a slowdown in Internet-related business, "it was still a heady, go-go time," she says. In 2000 the company made $23 million in revenues. McGovern expected M Squared to grow 9% the following year, to $25 million, and she made bonuses contingent on reaching that figure. But by the end of the first quarter, clients started pulling back on their consulting requests. Then came the April 2001 Internet-stock meltdown. "We went from having 150 to 200 consultants placed at clients to 100 in one fell swoop," McGovern says. Sales for 2001 came in at just $12 million.
McGovern laid off 22 employees. Not surprisingly, morale dropped like a stone, and her comp system just added to the misery. "Our system was such that in up times, everyone made money, but in down times only some salespeople made money and the rest of the staff didn't," she says. McGovern wanted a new system that encouraged people to work hard in slow times, when the company really needed it.
Early this year McGovern froze base salaries. Then, with team spirit in mind, she created a commission-like incentive structure for client-services employees, who partner with outside salespeople. The idea: if client-services staffers receive incentives for sales, they'll be more likely to help the salespeople close deals. Under the new system, client-services specialists receive incentives of 0.5% to about 1.5% on the sales that their partner salespeople close. She also tied the new plan to the company's revenue goals. For example, if the company makes 150% of its target, the percentages double. Today about 50% of M Squared's employees receive a sales-based incentive, up from 25%.
After two quarters under the new system, McGovern is optimistic. The 2002 plan has the company bringing in $13 million, a 10% increase over 2001, and McGovern says M Squared should hit its target. Plus her employees are more enthusiastic, although the new pay plan may not deserve all the credit. "Some of our teams are red-hot right now," she says. "But it's hard to say how much of it is because of the new compensation structure. Part of it is just that business is picking up. That's very invigorating."
