WHAT ABOUT ME?
May 1, 2001 12:00 PM,
Alan Kruglak
We used discretionary bonuses on a continuous basis to rewardstaff for exemplary effort.
IN THE CORPORATE ARENA, WHERE NEW ideas are always being tested,the mantra resounding from today’s business writers andintellectuals is this: Incentivize everyone in the company to sell,sell and sell! Following this new philosophy, compensationspecialists are devising elaborate plans that enable everyone inthe sales staff, including non-commissioned employees, toparticipate directly in the commission. While it’s a great idea tofollow this trend toward empowering and motivating non-commissionedemployees to sell, the road to a successful incentive program canbe lined with obstacles.
FAIR COMPENSATION
How do you fairly compensate the sales support staff withoutcorrupting the system? Corruption can take many forms. Forinstance, if the incentive pay for a support engineer or othersales support employee comes out of the sales rep’s commission, therep won’t use any of the support mechanisms available — a“more for me” reaction. If the incentive pay doesn’tcome out of the rep’s commission but is an additional cost to theproject, the rep becomes disgruntled because the higher cost couldjeopardize winning the project.
There is one type of compensation plan where sales reps gettogether and allocate a certain percentage of sales to the salessupport staff. That can work, but what are the rules andregulations? Is it a popularity contest, or does it require thesame type of analytical skills as interpreting chads in Florida?For fairness, it’s necessary to be able to show the math — orat least the pattern — behind these decisions.
ALTERNATIVE APPROACHES
There are several approaches to incentivize your sales supportstaff as well as other non-commissioned employees. At our company,we used discretionary bonuses on a continuous basis to rewardpersonnel for exemplary effort. If a sales engineer invested theextra effort, and we were successful, we generally gave him abonus.
Another successful approach is to use an objective,performance-based method. With the potential to revolutionizeincentive compensation, this program uses the followingapproach:
- Identify a bonus pool for times when the company meets its salesobjectives. For example, if your company meets its revenue goal of$10 million, then allocate a predetermined amount (say, $20,000) asa bonus pool. For every incremental dollar above $10 million, youwould increase the bonus by $0.002.
- Allocate the bonus on a percent-of-salary basis. The bonus getsapportioned based on each staff member’s salary. However, thesalaries should be weighted to reflect importance and centrality ofeach individual within the company. Technical members likeengineers would carry two to three times more weight thanadministrative staff. (See Sidebar on page 18.)
- Pay bonuses quarterly. For an incentive program to workeffectively, bonuses (as well as raises) for non-commissionedpersonnel need to be made frequently without becoming anadministrative burden. In this case, bonuses should be paidquarterly. Sales reps, however, should be excluded from a quarterlybonus because they are rewarded every month with a commissioncheck.
A FEW OTHER QUESTIONS
What about staff members that don’t invest the effort toachieve sales goals?
Every organization has individuals who do the minimum. However,with a general bonus program, peer pressure from other team memberswill gradually shift low performers into a higher gear — orperhaps out the door.
What if the staff works hard but the company fails to meetthe sales goal?
The rule is very straightforward. If you’re not making money,you can’t give any out in the form of bonuses. However, if thecompany is making money, but not as much as budgeted, managementcan (and should) make the decision to either partially or fullyfund the bonus program in order to maintain high morale.
The trend to incentivize non-commissioned employees is the nextwave in business management. By allocating bonuses based onachieving measurable goals, you’ll not only increase profits, butyou’ll also motivate your employees to act like shareholders.
This article is an excerpt from Alan Kruglak’s newbook, Sales Compensation, The Hunter-Farmer Way. For moreinformation, please call ARK Solutions at 301/365-7522 or visit theWeb site atwww.arksolutions.net.
Creating an Incentive Program Based on Salary
Let’s look at an example for the sales support department.Assume that non-commissioned sales support personnel earned aquarterly bonus pool of $20,000. How would you divide up theproceeds? One way is to identify the salary of each eligiblenon-sales person, assign each a weighting or factor of importancewithin the company, multiply that weight by the salary. Then dividethe weighted salaries by the total salary amount and multiply thatpercent by the available bonus pool of $20,000.
This process can be performed for the entire company using aspreadsheet, or you can use database software from Incensoft toautomate the entire process.
