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As the SM survey shows, the flip side of the coin is that “salary-plus” compensation (i.e. salary plus commission or salary plus bonuses) is becoming more popular.
“Every truly successful, high-growth sales department I’ve ever been involved with, either as a sales manager or as a consultant, has been salary-plus,” says Troy Harrison, owner of Troy Harrison and Associates, Mission, Kansas. “I have a theory why that is. I like to construct a compensation package so that the salary covers the necessities and the commission covers the lifestyle.”
When sales reps are focused on how they’ll make rent or put food on their tables, they make decisions that can run counter to good customer relations, he says.
“I want my salespeople to be taking the long view and be making truly good decisions out there in the field,” says Harrison.
Distributors are also discovering that younger generations much prefer the stability of salary-based compensation. For Mike Emerson, partner with Indian River Consulting Group, Indialantic, Florida, this makes sense, because many young people entered the workforce in a down economy yet still have massive student loan debt.
“They have a bottom line they must hit,” he says.
SM’s survey results back this up, showing “straight salary” as the second most common (21 percent) compensation package for new and inexperienced sales reps. “Salary plus” finished first with a 39 percent of responses.
But young sales reps aren’t the only party that is beginning to prefer salary-plus compensation plans. Paul Reilly, president of Reilly Sales Training, Chesterfield, Missouri, says that many distributors are also beginning to favor salary-based models, because paying salary allows distributors to better control what their sales reps do with their time.
“It’s hard to tell a straight commission salesperson, ‘Hey, we need you in the office on Fridays, handling your CRM, your follow-up pieces, or gathering technical data, or going out on retention calls,’” he says. “It’s hard to dictate that if you’re not paying them a salary.”
Offering bonuses — in conjunction with salary and commission, or along with salary and in replacement of commission — also allows distributors to exert more control.
“[Bonuses] allow you to direct short-term behavior,” says Pancero.
If distributors need to move specific products, tying bonuses to sales of those products is an easy way to incentivize salespeople toward that goal.
In fact, Harrison, who says salary is an important part of sales rep compensation, adds that a truly effective compensation plan should include salary, commission and bonuses.
However, distributors looking to make changes to their compensation structures should proceed with caution. All of the sales experts interviewed by SM agree that adjustments must be handled carefully and thoughtfully. Misguided or ill-informed changes to a distributor’s sales compensation structure can carry dire consequences.
“Compensation is the absolute last thing you change,” says Pancero. “Because it has the largest ramifications to blow up in your face. … It’s hard to correct if you make a mistake, because by the time you find out people are pissed about it, they’ve already been applying for jobs, and it’s too late.”
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