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MOTIVATIONAL COMPENSATION FOR OUTSIDE SALES SUPERSTARS

MOTIVATIONAL COMPENSATION FOR OUTSIDE SALES SUPERSTARS. CPMR 201 January 11, 2010 Arizona State University Bryan Shirley, CPMR President & CEO. Please….. . CELL PHONES EATING, DRINKING, CHEWING TALKING …… QUESTIONS -- PLEASE ASK ! BIO BREAKS BREAK TIME ?? WORKSHOPS.

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MOTIVATIONAL COMPENSATION FOR OUTSIDE SALES SUPERSTARS

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  1. MOTIVATIONAL COMPENSATION FOR OUTSIDE SALES SUPERSTARS CPMR 201 January 11, 2010 Arizona State University Bryan Shirley, CPMR President & CEO

  2. Please….. • CELL PHONES • EATING, DRINKING, CHEWING • TALKING …… • QUESTIONS -- PLEASE ASK ! • BIO BREAKS • BREAK TIME ?? • WORKSHOPS

  3. BRIEF BIO NOTABLES • COLRUD PAY PLANS • STRAIGHT COMMISSION FOR YEARS • POOL PLAN (AND VARIATIONS) • COMMISSION W/RECOVER. DRAW • COMMISSION W/NON-REC DRAW • SALARY PLUS BONUS • RepNet “no-name” Group – SHARING! • Consulting to Rep owners

  4. today • SOME PRE-THINKING • ONLY FIVE PLANS (5000 variations) • PLAN STRUCTURES (the “best” way) • IMPACTS AND INFLUENCES • WHAT SHOULD YOU USE • COMPENSATION PERCEPTIONS

  5. COMPENSATION • AUDIENCE SURVEY TIME

  6. WHAT IS THE MISSION STATEMENT OF YOUR COMPANY’S PAY PLAN ? BRIEF ONE LINERS

  7. WHAT IS THE MISSION STATEMENTOF YOUR COMPANY’S PAY PLAN ? WE WANT OUR SALES COMPENSATION PLAN TO: ________________

  8. PAY (COMPENSATION) IS REWARDED FOR THE EXPRESSED INTENT OF SHAPING A SALESPERSON’S BEHAVIOR

  9. PAY PLANS: ONLY FIVE(but 5000+ variations !) • STRAIGHT SALARY • SALARY PLUS BONUS • SALARY PLUS COMMISSION • STRAIGHT COMMISSION • POOL PLAN (PROFIT SHARING) • OTHER PLANS….. ?????

  10. WHAT TYPE OF PLAN DO YOU USE? • AUDIENCE SURVEY TIME AGAIN! 10

  11. PAY PARAMETERS (all plans) OBJECTIVE: • TENURE • EXPERIENCE • COMMISSION $$ • REPORTING • NBO CLOSURE • FC ACCURACY • LEADS (ALL) • SALES CALLS • SURVEYS *

  12. PAY PARAMETERS (all plans) SUBJECTIVE: • TEAM PLAYER • NON-SALES TASKS • INPUTS-CUSTOMERS/PRINC. • COOPERATION • GROWTH/STRETCH • CREATIVITY • RAPPORT • PROFESSIONALISM • COMMITMENT

  13. STRAIGHT SALARY • FIXED INCOME FOR ENTIRE YEAR • SET BY REP FIRM OWNER/MGR • SAME AMOUNT EACH PAY PERIOD

  14. STRAIGHT SALARYthe good stuff • EASY/SIMPLE TO IMPLEMENT/MANAGE • SECURE AND SAFE INCOME • HELPS FACILITATE TEAMWORK SALES • ACCOUNT/TERRITORY CHANGES EASIER • PROMOTES MORE CUSTOMER SERVICE • CLEAR AND UNDERSTOOD BY ALL • MANAGER CAN DIRECT PRIORITIES • NO IMPACT WHEN MAJOR CASH IN/OUT*

  15. STRAIGHT SALARYthe downside... • LIMITS SALESPERSON’S INCENTIVE • TOP PERFORMERS SUBSIDIZE TEAM • SALES STARS MAY NOT COME/STAY • WON’T HAVE AGGRESSIVE SALES • MORE DIRECT MANAGEMENT OF SALESPERSON ACTIVITY REQUIRED • DOESN’T MATCH FIRM’S COMP PLAN • CAN’T BE USED AS A TOOL TO SHAPE THE SALESPERSON’S BEHAVIOR

  16. SALARY PLUS BONUS • FIXED SALARY FOR YEAR • USUALLY IS 70-80% OF W2 • SALARY SET BY REP OWNER/MGR • BONUS PAID PERIODICALLY • USUALLY ONCE PER YEAR • SOMETIMES 2X, OR QUARTERLY

  17. SALARY PLUS BONUSthe good stuff • FLEXIBILITY FOR OWNER/MANAGER • BONUS AMOUNT VARIABLE (+/-) • ADJUST FOR FAST GROWTH (OR LOSS) • SECURE INCOME FOR MOST OF W2 • ACCOUNT CHANGES EASIER • MANAGER CAN DIRECT PRIORITIES TO BALANCE NEAR TERM/LONG TERM

  18. SALARY PLUS BONUSthe not so cool stuff…. • MORE COMPLEX TO ADMINISTER • REP SUCCESS WITHOUT GROWTH • CAN CREATE UNCLEAR GOALS • DIRECT MANAGEMENT REQUIRED • SOMEWHAT LIMITS INCENTIVE • SALES SUPERSTARS GET SUSPICIOUS • MAY SEE PERIODIC BEHAVIOR SPIKE • SOMEONE IS PLAYING GOD (bonus)

  19. SALARY PLUS COMMISSION • FIXED SALARY (NOT A “DRAW”) • USUALLY IS 40-60% OF W2 * • SALARY SET BY REP OWNER/MGR • SALARY IS SAME RANGE FOR ALL • % COMMISSION FROM ACCOUNTS • COMMISSION PAID PERIODICALLY • MONTHLY, QUARTERLY, 2X/YEAR * can be higher, with small comm.

  20. SALARY PLUS COMMISSIONgood because…. • PROVIDES BASE INCOME (“LIVABLE”) • PAY FOR PERFORMANCE AT ACCTS • AUTOMATICALLY ADJUSTS (+/-) • LESS DIRECT MGT REQUIRED • INCENTIVE FOR ASSERTIVE STARS • FOCUS ON INCOME GENERATION • BIGGER CHECKS TIED TO SUCCESS • FOCUS ON NEW ACCOUNTS • ASSISTS WITH CASH FLOW (owners)

  21. SALARY PLUS COMMISSIONpotential bummers…. • MORE COMPLEX TO ADMINISTER • NO SALES = NO COMMISSION • TOUGH TO CHANGE ACCOUNTS/TERR • LESS TEAM SELLING ENVIRONMENT • LESS ABILITY TO DIRECT NON-SALES ACTIVITIES BY (STAR) SALESPEOPLE • GAIN/LOSS OF LINES AND $$$ • GAIN/LOSS OF BIG ACCOUNT AND $$$

  22. STRAIGHT COMMISSION • PERCENTAGE OF COMMISSION GOES DIRECTLY TO REP • DETERMINED BY ACCOUNTS • FOR PERIOD PRIOR 30-60 DAYS • WE WILL ALSO INCLUDE PLANS THAT ARE STRAIGHT COMMISSION WITH RECOVERABLE DRAW--draw monthly vs. commissions periodically

  23. RECOVERABLE DRAW • PAY BTW $3000 - $6000/month (draw) • FOR EXAMPLE: $4000/month draw • COMMISSIONS PAID 2x/year (6 mons) • IF 6 Month commissions are: • exactly $24,000 --- ZERO ($0) commission • if they are $44,000 -- $20,000 check • if they are $20,000 ? (-$4000) ? To B.E. • THIS IS TRULY A STRAIGHT COMMISSION PLAN (no guarantee)

  24. STRAIGHT COMMISSIONneat things... • TOTALLY PAY FOR PERFORMANCE • AUTOMATICALLY ADJUSTS (+/-) • LESS DIRECT MGT REQUIRED • MAXIMIZES FOCUS ON INCOME • GREAT INCENTIVE FOR STARS • CAN CREATE REAL SUPERSTARS • NON-PERFORMERS NEED NOT APPLY • BIG CHECKS TIED TO SUCCESS • FOCUS ON NEW ACCOUNTS

  25. STRAIGHT COMMISSIONwatch out for…... • LOSS OF MAJOR ACCOUNT (OR GAIN) • LOSS OF MAJOR LINE (OR GAIN) • NO SALES = NO COMMISSION • REAL TOUGH TO CHANGE ACCOUNTS • ALMOST NO TEAM SELLING • LITTLE ABILITY TO DIRECT NON-SALES ACTIVITIES BY SALESPEOPLE • LONGEVITY/LOYALTY BY STARS • IT’S GREAT WHEN IT’S GREAT !

  26. POOL PLAN • PERCENT OF TOTAL COMMISSION GOES INTO THE “POOL”, OR • % IS TAKEN OUT FOR OWNERS & CORPORATE SAVINGS, EXPENSES PAID, REST OF $$$ GOES IN POOL • ALL EMPLOYEES (OR, OUTSIDE SALES) EACH GET A % OF POOL $$$ • OWNERS “IN” THE POOL/NOT • % SET ANNUALLY (OR 2X/YEAR)

  27. POOL PLAN EXAMPLE 1 kind of fuzzy, so pay attention ! TOTAL COMM X 40% = $$$$$$POOL$$$$$$$ (IN THE POOL) distributed to team Joe __% Jane __% Sally __% Sam __% Patrick __% Patti __% Gina __% George __% percentages all different (based on parameters) In this example, company pays all expenses 60% to company, 40% to POOL

  28. POOL PLAN EXAMPLE 2 TOTAL COMM X 75%= (Minus 25% to firm) = TEAM COMMI$$ION - ALL EXPENSES = $$$$$$POOL$$$$$$ distributed to team (8 emp) Joe __% Jane __% Sally __% Sam __% Patrick __% Patti __% Gina __% George percentages all different (exp$ info-share) 25% to company, 75% to POOL

  29. POOL PLAN VARIATION • SET COMMISSION GOALS-monthly • INCREASE TOTAL POOL PERCENT IF COMMISSION DOLLARS DO ALSO • 40% to pool if commission is $100,000/month • 42% to pool if commission is $110,000/month • 45% to pool if commission is $120,000/month • Baseline (expected/forecasted) is $100k • What if it drops to $80,000 ?? 38% to pool ?

  30. “PROFIT SHARING” POOL • COMBINES POOL PLAN WITH OTHER PLAN OF COMPENSATION • TAKES A % OF THE PROFITABILITY (CASH EXCESSES) AND DISTRIBUTES • EACH EMPLOYEE GETS A % OF THIS COMPANY “PROFIT” • USUALLY SMALL(ER) AMOUNT

  31. POOL PLAN % • % TO EMPLOYEE (OBJECTIVE) • TENURE AND EXPERIENCE • BOOKINGS/SHIPMENTS/COMMISSION • NBO CLOSURES/NEW ACCOUNTS • REPORTS ON TIME • FORECAST ACCURACY/ACHIEVEMENT • OTHER METRICS (MEASURABLE) CALLS MADE, LEADS FOLLOWED THROUGH, ETC

  32. POOL PLAN % • % TO EMPLOYEE (SUBJECTIVE): • GROWTH IN JOB/POSITION • TEAMWORK AND COOPERATION • INPUTS FROM CUSTOMERS/PRINC • INPUTS FROM DISTY/DEALERS • PRODUCT KNOWLEDGE * (quizzes !) • PRESENTATIONS TO PRINCIPALS • DWYSYWD, INIATIVE, EXTRA EFFORT • DEDICATION AND WILLINGNESS

  33. POOL PLANgoodies…. • CREATES STRONG TEAMWORK SALES • SPREADS BIG WINS AND BIG LOSSES • COMPENSATES NON-SELLING TASKS • TEAM FOCUS ON INCOME GROWTH • CREATES AWARENESS OF P&L ISSUES • CREATES PEER MANAGEMENT (esp new) • ACCOUNT/TERRITORY CHANGES EASY • CAUSES EFFICIENT ACCT COVERAGE • EASY TO ADMINISTER & UNDERSTAND

  34. POOL PLANbut, but, but ….. • CAN BE COMPLEX TO ADMINISTER • SALES STARS MAY NOT FLOURISH • STARS MAY SUBSIDIZE TEAM • SOME GET SUSPICIOUS ABOUT % • MAY SEE PERIODIC BEHAVIOR SPIKE • SOMEONE IS PLAYING GOD WITH % • % RESETTING FREQUENCY AN ISSUE

  35. VARIATIONS TO ALL PLANS • EXPENSES ! WHO PAYS WHAT • CAR (ALLOWANCE: $300-500) • T&E (SALESPERSON, COMPANY TRIP) • HEALTH INSURANCE • CELL PHONE, HOME OFFICE, ETC… • COMPANY PURCHASE (STOCK ?) • INFLATED/”SPECIAL” EXPENSES

  36. What is “COMPENSATION” • EARNINGS – yes, obviously (W2) • HEALTH BENEFITS ? • CAR ? • EXPENSE ALLOWANCES ? • ADDED VACATION/FLEX TIME ? • Employee “COST” vs. Compensation

  37. 1099 Independent Contractor • not included in this talk (nor on exam!) • NOT an employee of the rep firm • “sub” contractor gets % of commission • 40% --- 50% ---- 60% (maybe 70%) • Independent contractor status • should have their own company • AUDIENCE ?? 1099 salespeople ??

  38. GROUP THINK !

  39. DEFINING THE THREE “TYPES” OF OUTSIDE SALESPEOPLE • FOR OUR PURPOSES TODAY: • STAR/VETERAN/TOP PERFORMER • MID-LEVEL/GROWTH PERSON • NEWER PERSON/LOWER LEVEL

  40. YOUR IDEAS • FOR YOUR INDUSTRY • FOR YOUR COMPANY (MARKET) • OUTSIDE SALESPEOPLE (3 types) • WHAT DO THEY EARN (W2) • RANGE: LOW $ to HIGH $ • AVERAGE $

  41. YOUR IDEAS – what are the $ TOP SALESPERSON (STAR !) MID-LEVEL SALESPERSON (Grower) NEWER SALESPERSON (not entry)

  42. GROUP IDEAS ??? • TOP: RANGE $ ______ AVG $ _____ • MID: RANGE $ ______ AVG $ _____ • NEWER: RANGE $ ____ AVG $ ____

  43. LET’S DO SOMEc O m P L a I n I n G !!“ Those @(*&(_@#... … principals … customers … disty/dealers … employees

  44. Complaint Department TAKE THAT COMPLAINING TIME and do something useful > CALL YOUR OUTSIDE SALES FOLKS > CALL A FRIEND THAT YOU HAVE NOT TALKED TO IN OVER ONE YEAR > CALL AND ORDER $19 FLOWERS > HAND WRITE A NOTE TO SOMEONE > BRAINSTORM ABOUT A NEW COMP PLAN !

  45. FIVE EASY PLANS !! • WHICH ONE IS “THE BEST” ?? • LET’S LOOK AT SOME NUMBERS AND STRUCTURES

  46. EARNINGS SURVEYS • 2001 ERA SURVEY • 242 COMPANIES • AVG: 10.2 EMP • AVG: $31.6 MIL SALES • Compensation paid out: 60.3% (of total comm) • Compensation to outside sales: 44.7% (of total comm)

  47. EARNINGS SURVEYS • Outside Sales $81,600 • Disty Sales: $67,500 • Inside Sales: $37,500 • Gen Office: $28,600

  48. “MY REP FRIENDS” SURVEY • 22 out of 29 responding • TYPE OF COMPENSATION PLAN • 8 = SALARY PLUS COMMISSION • 7 = POOL PLAN • 4 = SALARY PLUS BONUS • 3 = STRAIGHT COMMISSION • 0 = STRAIGHT SALARY • EFFECT of ECONOMY

  49. “MY REP FRIENDS” SURVEY • 0 (ZERO/NONE) USE STRAIGHT SALARY FOR A PAY PLAN

  50. “MY REP FRIENDS” SURVEY • 18% OF REPS USE: SALARY PLUS BONUS • Salary plus bonus 2X year: performance • Salary plus bonus % from 40% of profit • Salary plus bonus based on NBO’s, etc..

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