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SELLING SOLUTIONS
Sales Compensation Plans need to cater to your employees’ needs by: Jim Strauss, MOTIVE8S Inc.
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ompensation plans for salespeople are an interesting topic. When I travel around the country working with office technology companies, I find that this subject comes up quite often. Compensation plans fill the spectrum — from very simple plans, where all sales employees in a company, regardless of their territory or account assignment, have the same plan — to complicated individualized plans that seem to change with every order written. Some plans have not changed for years and go back to the days of the founding of the company while others are progressive and advanced, keeping up with the times. When you speak to the top executives of larger firms and the owners of small ones, they all have one thing in common: they are interested in what works in today’s market. At MOTIVE8S, we try to consider the following elements when we help organizations design compensation plans for their salespeople: Does compensation align with company interest? Does compensation drive the company’s initiatives? Does compensation reward performance? Is compensation flexible for change? How can compensation be a recruiting and retention tool? Aligning with Company Interest It makes sense to say that a company’s compensation plan should line up with the company’s interest, but too often I find that this is not completely true. How does this happen, you may ask? Well, it happens often over time. If the compensation plan used today was designed 15 or 20 years ago and has seen little change, chances are the plan does not line up with the needs of today’s market and it needs to change. If too many changes have happened over the years because the compensation plan was modified for short-term issues, situations and needs, it too could be misaligned with the company’s interest. Let’s talk about the concept of little change versus too much change. Often, I find that compensation plans that were set up many years ago are designed primarily to drive revenue. Salespeople hit their numbers month after month by selling new solutions to new and current customers, but more likely they just turn over the current customer base. On the surface this does not sound like a bad idea, but if you look closely, it is slow 34 | w w w . o f f i c e t e c h n o l o g y m a g . c o m | M a r c h 2 0 0 7
death to an organization. Let’s take the example of a copier/ multifunctional device. Each time we upgrade the machine and replace it with new gear, we create a positive situation and a negative situation. The positive situation is that we kept the customer from being picked off by the competition. The negative situation is that this customer, who was paying for a service agreement that was profitable in the past, is now paying less (in order to be competitive) and our most important revenue and profit center (the service agreement) is declining year after year. If you analyze this situation closely, it is the compensation plan that drives this type of activity. Change the compensation plan and you will change this outcome. One progressive consideration for this problem is to tie the salesperson’s compensation to the profitability of the service base of his (or her) territory assignment. The organizations that do this find that there is less premature “churning” of the customer base. The salesperson has an incentive to keep the customer, who has a profitable service agreement in his territory longer. When the profitability of the service agreement begins to become less —