Monthly Archives: February 2012

10 Effective Features of Sales Commission Plans


In the fall 2011, Wilson Group conducted a survey to determine the most prevalent features and attributes of sales incentive plans.  Information was collected from 16 companies that are either based or have significant operations in the New England region.  In addition:

  • Participants primarily come from two industries – technology (41% ) and consumer products/retail (47%). Manufacturing and distribution companies make up the other 11% of the participants.
  • The type of companies are public sector (41%),  private (41%), or (18%) comprised of subsidiaries of larger companies.
  • Average revenues of participating companies are $2.2B.
  • Approximately 10% of their employees are in the sales function in these companies.
  • Total compensation paid to sales people reflects about 26% of total payroll in these companies.

Survey participants shared what they believed were the most effective features of their sales compensation plans. This is important because these elements reflect what people believe to be their own “best practices” and provide a competitive advantage to their company. The features were:

  1. Separate monthly targets
  2. The aggressive commission rates
  3. The commissions that are structured by account with include performance kickers
  4. The combination of commission rate accelerators and bonus payouts for high performance
  5. The simplicity of the plan
  6. The degree to which people understand the plan because of its effective communication
  7. Paying commissions for products and add-on bonuses for selling services that support the products
  8. No caps on earning – unlimited earnings
  9. The use of multiple accelerators
  10. The use of income stability through competitive base salaries combined with commission incentives – the upside is capped and the downside is managed

For a detailed report of total survey findings, the survey can be purchased in the Surveys and Reports for Purchase section of our website https://www.wilsongroup.com/resources/surveys-and-reports-for-purchase/

 

 

What does a golf scorecard and an Incentive scorecard have in common?


Golf scorecards serve an important purpose for golfers playing a round of golf. For each hole, it provides information as to the number of shots one takes and it provides a standard number of shots one takes in order to be at par. Golfers know that if they take more shots than par, it is a bogey, or one shot below par is a birdie. The difficult to achieve but highly recognized is a “hole in one”. There is also a number of shots that a player can take before they have to pick up their ball and take the highest score. At the end of the game, the number of shots per hole are added up and the total score is compared to the par score for the set of holes. Unless you are a pro golfer, golfers are not usually consistent at playing each hole.  However, the total score provides an accurate picture of the player’s total game.

Incentive scorecards are the similar. Instead of 9 or 18 holes, there are two to five performance measures. The par number is the goal or target of the measure. When someone overachieves on their goal, the scorecard may state one or more levels of achievement that helps the participant know how much they have overachieved.  When goals are not reached they have a minimal score that they know is important to reach. At the end of the performance period, the score from each measure is added up to create a number or percentage of overall achievement, e.g., 110%, with 100% being the goal or target, similar to being on par.

Other similarities between the two scorecards come to mind. Sometimes in golf, players are in teams and play scotch or best ball or score. In the same way incentive plan performance measures can be individual, team, department or company based, such as profit. Sometimes things outside of a player’s control can influence the game, such as weather, course conditions and other players he or she is playing with. The same thing can happen with performance measures and goals on an incentive scorecard.

One can play golf without a scorecard and have a general idea of how he or she did. However, by keeping score a player’s strengths and weaknesses become clear and improvement can occur.

Both types of scorecards can be simple or complex, depending on the organization or the course. Some courses have many different tees, so that they have to put multiple pars on the scorecard. Men and women have different pars too and that may all appear on one scorecard. Organizations sometimes have too many measures or make the goals complex.

Incentive scorecards help measures, goals and incentive calculations become clear and improve participant understanding. They are most effective when:

  • There is a need to have multiple types of measures, for example:
    — Individual
    –Group (i.e., Regional, Strategic Accounts, Business Unit, or Corporate)
    –Multiple Financial Measures
    –Need to mix qualitative and quantitative measures
  • Not all measures are valued the same – need to weight them strategically
  • There is a range of performance levels and payout opportunities (not just a binary – yes/no – assessment of performance)
  • There is a need for a common mechanism that can be used in various situations, such as different types of jobs, functions or sub-organizations

Incentive Scorecard Illustration

 

The Needs of Hourly Employees


Much has been researched and written about the attributes that attract, retain and engage employees.  Most recently this was covered in detail by Daniel Pink in his book Drive. These are commonly found to be work challenge, empowerment, and project responsibility. As a result, many organizations focus on these attributes in enhancing employee engagement.

However, research on hourly employees finds that hourly employees often have unique needs, expectations and preferences compared to professional or managerial employees. The following top eight attributes have been found to be most valued by highly performing hourly employees:

  • Base pay – internal equity as well as competitiveness with the market
  • The quality of the manager
  • Retirement benefits
  • Health benefits and work-life programs
  • Recognition and appreciation – by one’s immediate manager, peers and executive management
  • Work environment – work tools, cleanliness, equipment, safety
  • Development and job-progression opportunities
  • Work-life balance – work hours, location, vacation policies, child care, wellness programs, etc.

These identified preferences are not static, as they change with the employee’s experience, age and personal circumstances.

For organizations trying to improve employee engagement and/or develop a philosophy and strategy for rewards and recognition, there is a decision to be made: blend the needs of their total workforce or address hourly versus salaried employee needs.  We tend to see the differentiated approach in organizations with a significant hourly population or appreciate the impact hourly employees have because they are in roles that are critical to the success of the business, such as employees with direct contact with the customers or products.  Although having similar programs is more efficient to administer, different programs within a generally consistent framework can create significant performance benefits for the organization.

Some steps that organizations take to determine their approach include:

  • Surveying the hourly or total workforce and ask them to rank their preferences in pay and benefits.  For example, if you do not have a performance based program for hourly base pay increases, ask employees if they prefer to get the same increase as all employees or receive a higher increase/higher pay based on performance.
  • Conducting focus groups with participants of diverse demographics but high performing  employees. Understand what they like about the current compensation and benefit programs and what could be improved.
  • Interviewing managers to understand what tools they need or are using to engage their employees and how they may be similar or different between types of employees.  Some of the best practices are internal to an organization.
  • Confirming management and cultural understanding and support of differences in needs.
  • Understanding the capabilities of systems solutions to effectively administer new or different programs.

Effective Base Pay Programs


Having a base pay compensation program can create many benefits for your company.  The current status of an organization’s base pay program tends to fall into three categories: (1) Organizations that do not have pay grades and salary ranges; (2) Organizations that have not reviewed or enhanced our current pay grades and salary ranges for many years; (3) Organizations that have an effective base pay program.

 

For the organizations in the third category that feel they have an effective base pay program, there are certain features or characteristics that they use to describe their programs.

 

  • We describe and provide our employees with career path information for their function. Through these career paths we support advancement opportunities for employees, as we want them to continuously learn and apply improved skills and competencies.

 

  • We have placed our jobs in pay ranges.  The pay ranges have been developed based on the market so that they are externally competitive. Our managers can attract and retain the necessary talent for the organization.

 

  • There is a process in place that we use to establish, review and maintain internal fairness in pay and job responsibilities.

 

  • Most employees have a clear understanding and acceptance of the rationale for compensation decision making.  This has been accomplished through regular communications about the compensation program and managers are trained and fully informed on how to reinforce our compensation philosophy.

 

  • We provide managers with tools so that they can recognize employee performance and make decisions regarding employee pay that are consistent with our philosophy.

 

  • The program has been designed in way that administration is efficient and effective.  There are very few requests for job evaluations.  We have set up a calendar of to conduct market studies, analyze the impact and take necessary pay actions on a regular, ongoing basis.

 

  • We have anticipated the possibility of new acquisitions, reorganizations and organizational expansion in our jobs and grades so that the program provides sufficient flexibility and scalability into common jobs and pay levels.

 

  • Our organization is unique and the compensation program effectively combines our values and needs within the structure of sound compensation principles.

 

  • Fixed compensation costs do not get out of hand; we can effectively manage and optimize these costs based on the organization’s business needs.

 

  • Our program is not static but has improved over time from the initial effective date.  The types of improvements that have gotten the most traction are more frequent communication, expanding the functions covered by career paths or defined job families, developing additional tools for managers, adjusting pay grades, reviewing job title use and implementing systems solutions.