ASK THE EXPERT: September 2015
Changing Pay Plans
“I have a sales staff who average just over 21 years of experience each. For the past decade, they’ve been paid salary plus bonuses. I would like to go to base plus commission, but I’m not sure how to start that program with a seasoned, experienced staff. I don’t want to penalize my salespeople, yet I feel my existing structure is a closed-door opportunity—for them, and for my company. My sales people are great in many, many ways. I want to open doors and have their careers to be filled with earned success, while helping to grow my company’s revenues. I’d appreciate any insights.”
Congrats to you! I have always been curious as to why in our industry, as profit-challenged as it is, so few dealers are willing to challenge the status quo in compensation programs for their sales staffs when the potential benefit is so overwhelming. With a new pay plan, you can change both the future and the direction of your company.
I can guarantee you a minimum of 25% of your staff will quickly have an epiphany as they realize their compensation can largely be affected by the profitability of the products and services they sell. Every sale. Every day. Where your current salary-bonus comp plan fails in this regard, your new base plus commission plan will really bring this fact home to each salesperson.
But the road to this significant change within your company and sales staff, and their subsequent collective sales’ efforts, is fraught with potholes, and possible failure, unless you accompany your new pay plan presentation with the following four keys. They are:
1. The days of telling are over. Your sales staff are professionals, seemingly very loyal to you and your company. Providing a detailed explanation regarding the threatened profitability of our industry, the opportunity/need at hand to grow revenue, gross profit margin, and bottom-line profit, and your willingness to share with your sales staff in your collective success in a win-win financial arrangement, is critical as you kickoff the new comp plan.
2. While I personally favor a base plus commission plan that varies the base slightly based on years of service, I can be persuaded, for simplicity’s sake, to be consistent and keep everyone’s base rate the same. However, I do think it is essential that your new comp plan incorporate a broad sharing of gross profit/commissions, from low-margin (and therefore, low-commission) framing to high-margin (and high-commission) millwork sales.
3. As part of your new pay plan presentation, let your sales staff know that while you’ll begin on a given future date to pay them based on the new plan, you will track their compensation on the old plan for the next year. If you really believe the new plan is better and will benefit both your company and your sales team, put your money where your mouth is. At the end of the year, pay them the higher of the old vs. new pay plan. The worst that could happen is you will uncover a poor performer, previously masked under your salary plus bonus plan, and end up paying them a little more for the one year only. The best that will happen is: 1) no one will be given a reason to not give it a try; 2) your top performers will earn more; and 3) your company will increase its net income and possibly market share. A true win-win.
4. Lastly, be open to constructive suggestions from all sources, especially your sales team. Although it is important to be firm in your stance for the need for a more current pay plan, recognize no pay plan is perfect. Once the year is over, advise your sales team you’ll review the outcome of the new plan…together. Where there may have been an unanticipated windfall, for either the sales team or the company, let them know you’ll make the appropriate adjustments. Change, with a transparent, thoughtful, and inclusive approach, most often yields good results. I believe sales staffs are the horses that pull our wagons. With a new pay plan, you can get them pulling your wagon in the direction you choose, that is most beneficial to them and your company, and yields a true win-win.