Sales Pay Plans Written By Non-Sales People


It’s not uncommon for Clients to ask me to review their Sales Pay Plans. Often, this involves making changes and additions to what’s already written, to make it an effective and productive program for everyone involved. Nearly as frequently, though, this requires me to write whole new sections that are just plain missing. Thankfully, it’s a rare occasion for me to come across a section of a pay plan that needs to be excised completely. That did happen recently, however, when I came across a clause in a Client’s pay plan entitled “Windfall Business”. Here’s how that clause read:


“To provide for those unusual occasions when business achievement is realized through little or no effort on the part of a Participant, the Company reserves the right to declare such business a ‘windfall’. Windfall business is subjected to special treatment. Such treatment will be handled at the sole discretion of the Plan Administrator.”

I’m thankful that, when I first read this clause, I wasn’t in the presence of the Client. No doubt, my reaction was visible and it probably wouldn’t have been good for our relationship for them to see that. At first, I wondered what could have motivated such a position. Then, I wondered how my Client could have permitted it to be embedded in their pay plan. Finally, I decided that neither of those considerations should be my immediate concern. I had been introduced to this Client under the auspices that “they need a guy like (me) to turn their Sales around.” So, regardless of the answers to my “what & how” questions, I knew that their “Windfall Business” clause was a counterproductive element for Sales. They needed to understand that clearly and immediately. Here’s how I went about getting that done:

I, simply, shared with them some of my background in helping to develop Sales People. What I told them was: ”I’ve had occasions where, fairly early on in their efforts, new Sales People would have a stroke of good luck and close some significant business more quickly than they expected. In these cases, it wasn’t uncommon for the Sales Person involved to express some guilt, that they hadn’t really earned the sale. My consistent response in these instances was to tell that person that all Sales People get their share of luck … some of its good and some of its bad. You’re going to get your share of bad luck so, when you get some good luck, enjoy it and don’t feel guilty.” That was really all it took. From that, my Client recognized that their “Windfall Business” clause allowed Sales people to keep their bad luck but they didn’t necessarily get to keep their good luck. They agreed to remove the “Windfall Business” clause from their pay plan.

You may be interested to know that, in discussing this matter with my Client, I did learn the answers to my “what & how” questions. The answer to ”What could have motivated such a position?” was that it was a clause developed by an HR Consultant. The answer to “How my Client could have permitted it to be embedded in their pay plan?” was that they’d payed the HR Consultant for their advice and the Client felt they should follow the advice they’d paid for. In both cases, it’s an indication that both the HR Consultant and the Client don’t “get it” when it comes to what I called the “legitimacy to the Sales function in business”, in an earlier article entitled “The Pride and Prejudice of Sales“. And, I have to admit, with something like this; it may require a person who has Sales experience to “get it”. To many, who don’t have Sales experience, it may even seem to have a certain logic to it. And, that’s why I think my Client’s erstwhile “Windfall Business” clause is a great example for my point in this article:

In order to establish a Sales Pay Plan that’s effective and productive for everyone involved, don’t have it written by Non-Sales People!

What’s your experience been with Sales Pay Plans along these lines? Do you have other good examples to share? Do you agree with my perspective on the “Windfall Business” clause? Please let us hear from you, to benefit others through the experience you’ve gained!

The "Highly-Leveraged" Pay-Plan. A Right-Fit For The Tough Economy?

It seems that current economic conditions are resulting in more companies considering a more "highly-leveraged" pay-plan for their Sales force. Generally, this means a lowering of Base pay for a Sales person and an increase in the percentage of their potential Commission. As thoughts along these lines have been presented to me, they've often been accompanied by comments like, "A Sales person should eat what they kill, right?" That sort of argument can seem logical, at a gut-level, but it may not be the right approach for every circumstance and it certainly merits more thorough examination.


In order to give this topic a more complete look, I think it should be viewed in context - i.e., where does it fit in with the overall design of the pay-plan/commission-plan that's right for your company? Of course, the "right design" for a commission-plan is going to vary from company to company. So, in order to do this "more thorough examination", its necessary to come up with a "yardstick' that's good for general application. One that I came across some time ago, which I think suits this purpose as well as any, was an article in BNET called "Design a commission plan that drives sales - Sales Commissions". This article begins with a "Ground Rule" which seems like a great "yardstick" to start with on this topic. It says:

'* Start with the outcomes and behaviors you want to foster;"

Generally, as this topic has been raised with me, the only "outcome" receiving any attention is increasing revenues while reducing upfront investment. In one case, I met with a business owner who was targeting a 50% increase in annual revenues while planning to reduce the base pay of his Sales people by more than 50%. Of course, this is a pretty extreme example and it may just be a reflection of that company's financial position. However, this company's approach on this topic is similar to others I've encountered recently in as much as it only focuses on one desired "outcome" and it ignores desired "behaviors". Ironically, in most cases where this is coming up, its coming from business people who tend to view "typical Sales people" in the way I described in 'The Pride and Prejudice of Sales"- i.e., "a huckster" who is skilled at "palming off" some product or service. The true irony in this is that those very business people are adamant about not having that sort of behavior as a part of their company. It seems to me that their myopic perspective on this is more likely to produce behaviors they don't want while being unlikely to produce the revenue outcome they do want, at least not consistently and not in the long-term.

This isn't to say that there's no place for the "highly-leveraged" pay-plan/commission-plan. But, as with any commission-plan, it should be designed considering ALL the "outcomes and behaviors you want to foster." I think most Sales people also have the gut-level reaction to the statement, "A Sales person should eat what they kill, right?", that it seems logical. However, that's only going to hold up, if they feel a part of an organization where everyone "has some skin in the game." In the case of the business owner I mentioned who was targeting a 50% increase in annual revenues while planning to reduce the base pay of his Sales people by more than 50%, this was a complete disconnect with the company's pricing structure. That pricing structure is pretty standard ... a Customer is told what they'll get and at what price ... the Customer isn't allowed to pay more or less, depending on how they like what they end up with. Of course, any incentivized Sales compensation-plan won't completely map to that sort of pricing structure either. But, if I was on the receiving end of the pay-plan the business owner in question is contemplating, the gap between how I was getting paid and the way the business owner is getting paid would most certainly have a negative impact on my behavior, especially in terms of my feeling a part of that company.

So, what are your views on this? As always, we welcome you sharing your related views and experience for the benefit of others.

Comment

Liz Cobb, CEO Makana Solutions Says:


January 16, 2009 at 4:51 pm edit

Your most compelling argument here is related to one of my fundamental philosophies: “start with the outcomes and behaviors you want to foster”. My version of it is make sure your plan communicates what you intend for the salesperson to do, because it is the most powerful communications you have.



However, I cringe at the argument that the reason to lower base salaries is that “A Sales person should eat what they kill, right?”. The real reason, and everyone knows it, is that the business owner now needs to save the money to be more profitable. If they are doing it for their own benefit, that will be noticed. If they are doing it because our economy is going through hard times, the message can be told differently. By showing that lowering the base doesn’t mean you will make less money unless you produce less or by showing a higher reward for over performance, you are communicating a shared business goal and reward. We have several customers who have managed this successfully because of the very clear plan documents our system produced. Take a look. http://www.makanasolutions.com