If one of your new year's resolutions is to revamp your sales-incentive program, take note: an informal poll of 20 fast-growing companies revealed some interesting variations on tried-and-true approaches to the end-of-the-year incentive.
Not surprisingly, half the companies we spoke to -- with sales that range from $1 million to $130 million -- still put their faith in cold, hard cash ahead of trips, prizes, and stock options. But a number of companies are tying quotas and year-end bonuses to a variety of factors besides sales volume -- including margin levels and success at opening new territories.
To get an idea of how your annual incentive program stacks up, consult the table below.
R. W. Frookies, Englewood Cliffs, N.J.; $17.3-million cookie company; 10 salespeople.
INCENTIVE: A cash bonus to salespeople who surpass their sales of the previous year; a sales target is agreed upon up front by the salesperson and the sales manager, based on their knowledge of the market and their distributors. The sales goal has two tiers: 25% and 50%. For example, if salespeople previously sold $1 million and sell $1.25 million this year, they would get 25% of their salary as a bonus; if they sell $1.5 million, they would get 50%. REASONING: When you're up against Nabisco, your incentives -- and likewise the payoff -- have to be ambitious, says CEO Richard Worth. PAYOFF: The incentive program has been around since the company began, four years ago; in that time Frookies has squeezed onto the shelves of 30,000 stores. COST: About $100,000.
American Power Conversion, West Kingston, R.I.; $89-million maker of uninterruptible power supplies; 20 salespeople.
INCENTIVE: Each team, or region, can win a hefty cash bonus if everyone on the team meets his or her goal. Goals are dictated by sales ranking: for newest sellers, bonus is based 10% on new business and 90% on repeat business. For top salespeople, the ratio is reversed, with the bonus based virtually all on new accounts. REASONING: "Since it's all or nothing, the best salespeople inspire the less-proficient ones," says marketing director Aaron Davis. PAYOFF: Since this bonus program began, three years ago, almost all the teams have received the reward each year. Sales have more than doubled since 1989. COST: Bonus amounts to 16% to 24% of each salesperson's salary.
J. A. West, Pittsburgh; $10-million builder; 8 salespeople, plus network of real-estate brokers.
INCENTIVE: Competition called "How the West Was Won." For every unit they move for J. A. West, brokers receive a "casino chip" in the mail; three chips can be cashed in for a first-class trip to Las Vegas. In-house salespeople get a bonus equal to 14% of the profits on the project. REASONING: "We wanted our guys to be aware of costs, and we wanted the brokers to steer more business our way," says CEO Jim West. PAYOFF: "Our guys are more committed to keeping overhead down. Brokers are moving more of our properties than the competition's," West says. COST: $2,000 for a four-day Las Vegas trip for two.
Leegin Leather, City of Industry, Calif.; $36-million leather-belt manufacturer; 37 salespeople, plus 3 independent reps.
INCENTIVE: Leegin will hold its 1992 annual sales meeting in Hawaii this year if salespeople got customers (retailers) to put in their orders for the last quarter of 1991 by November 30, two weeks earlier than usual, to offset the holiday rush. REASONING: "I need orders early so I can fill them all in time," explains president Jerry Kohl. PAYOFF: Forty-percent-plus growth -- annually for the past four years. COST: About $400,000 to take the sales team, associates, and spouses on the trip.
Imtech, New York City; $30-million software manufacturer; 32 salespeople
INCENTIVE: Incentive stock options tailored to the salesperson's goals. If a salesperson's goal is $1 million in sales, for example, and that salesperson makes quota, he or she will get 5,000 stock options. If the salesperson reaches 10% above quota, he or she will get 7,000 options; 20% above quota, 10,000 options. REASONING: Everything a salesperson sells over quota goes directly to the bottom line, reasons CEO Pierce Lowrey, so why not be generous with stock options? As part owners, salespeople get to play entrepreneur, since they know their performance can affect the stock price. PAYOFF: The (relatively) low cost of exercising the options ties employees to you for the long term. COST: "We kind of lose money," Lowrey says, by offering the ability to purchase stock at a certain guaranteed price, but that's offset by the benefit to the bottom line.
National Leisure Group, Boston; $35-million-plus travel agency; 75 salespeople.
INCENTIVE: The Million Dollar Club, for those who bring in $1 million in net sales for the year. Winners are taken out on the town by the CEO and the sales manager when they hit $1 million. They're also recognized at the company Christmas party and receive plaques and gifts. REASONING: Says cofounder David Fialkow, "We want everyone to know that $1 million in sales is achievable." Why $1 million? "That's the point where the company really makes a lot of money on the agents' sales." PAYOFF: Five employees made the Million Dollar Club in 1990; nine made it in 1991. COST: About $1,000 per club member.
-- Susan Greco, Christopher Caggiano, and Michael P. Cronin