Over the past few months, I’ve been involved in a lot of discussions on sales compensation. Last quarter, the conversations focused on commission and bonus plans people were looking to put in place for this year. Last week and this week, I’m involved in a lot of discussions about people being disappointed in the bonuses they received or didn’t receive for last year, how to manage the issues and so forth.
We talk about pay for performance all the time. Everyone likes pay for performance when there are great years. When we’ve blown out the numbers or overachieved our goals, people are excited about pay for performance. But when we have had a tough year. When business is down or we haven’t met our goals—despite how hard we worked and how much we tried—we don’t like pay for performance. I can’t count the discussions I’ve had about, “my people think they should be paid for their hard work and effort.”
I have to admit I’m a little hard nosed about this topic. We can’t have it both ways, it’s just an insane argument. When we perform well we should be compensated for it. When we perform poorly, we should be compensated for that performance—not our effort. If our performance has been down from the previous year, our compensation should be less than the previous year. We’ve produced fewer results.
I suppose it’s human nature to focus on ourselves and our compensation. It’s natural to always want to see progression and increases. But failing to produce results impacts more than our compensation. It ripples through the entire company, it impacts shareholder perception, suppliers and others.
If the sales organization as a whole doesn’t produce results, people lose jobs. Even though we have worked very hard, even though we have put in long hours, we haven’t produced the results. We can’t pay the bills in the organization, we can fund new projects and programs through good intentions and hard work.
Accountability is tough. There are upsides and downsides. We can’t choose to be happy with the upside only and not have to bear the consequences of the downside. Accountability is blind to that.
I’m tough on this. People say, they should be better compensated. My answer is very simple, you can be better compensated. It is totally in your control. Meet or overachieve your goals. Your compensation will increase when that happens.
Perhaps my view was shaped many years ago when I was having a similar discussion about my compensation with my manager at the time. I thought I deserved an increase because of my dedication and efforts. His response was succinct and clear: “Your increase will become effective when you become effective.”
Are you being effective? Are you achieving your goals and producing results? If you aren’t you have no basis for any discussion on your compensation. Sales is a job in which we are compensated for our performance, so it’s our responsibility to perform.
Hi David,
Timely post… I agree with you – we cannot have things both ways… If you get paid when things are good, you have to accept when things are bad…
One thing I have learned over the past few years – is that I cannot put all my eggs in one basket… What I mean by that – is if you only compensate folks on short-term goals – you will find yourself in a difficult situation…
There must be some emphasis on the long-term… That could be Quality, renewals, life-time value – depends on the industry – but something to have folks focus on more than just the next week/month/quarter…
Mike
Great points Mike, the compensaton plan has to reflect our goals and what we want the sales people to be doing—both for the short and long term.
I agree that pay for performance is a key to the performance of a sales organization. I have managed a Rep company for over 30 years with between 5 and 12 sales people. I have tried many different compensation arrangements. Almost without exception I have seen that those individuals with a plan where their pay is a percentage of what they bring in are more productive, understand their business better, require less management and make more money over time. Note: it is often difficult to hire a new salesperson without making a commitment for some period of time. My experience is that, as long as this time period is well defined and the goal clear, you should get the same thoughtful and urgent approach to business that improves their and your chance for success.
John, great insights. I also agree with the transition plan for new hires, but I want to get them onto a pay for performance plan as agressively as reasonable. Thanks for joining the discussion. Regards, Dave
David, thanks for interesting blog.
Talking about compensation package, could you please suggest a size of fixed and variable part for sales rep? 70% and 30%? For sales manager?
Nikita: Thanks for the note. It’s impossible to answer your question in terms other than “it depends.” It depends on your overall objectives, what you are expecting people to do, what you have to do for competitive compensation, and other things. While it sound simplistic, you have to really look at what you expect the people to do, defining a program that complements that is most effective.