Updating a Compensation Plan

A reader writes, "I inherited the current sales compensation plan from my predecessor. With a lot going on, I made the decision to live with it for one year. Now I'd like to make some changes. What time of year is best to get started on a project like this? What constitutes a good comp plan?"

Your question is well timed - October being the month when many businesses start revamping or making changes to their sales compensation plans.

To answer your question, I spoke with Robert Blohm, Senior Vice President Sales and Alliances with OpenSymmetry, a consulting company that specializes in the planning, implementation, and management of SPM (Sales Performance Management) solutions.

What constitutes a good comp plan?

Rob: "A good sales compensation plan includes some basic tenets... it aligns with the overall sales strategy, and the job / role it is supporting. It is easy to understand. While there are many layers to each of these tenets, they are good reference points when evaluating your plan or creating a new one."

How often should comp plans be revisited?

Rob: "Sales compensation plans should be assessed for their effectiveness and overall alignment with the jobs and sales strategy on an annual basis. The basic structure of a sales plan designs usually has a shelf life of 3 to 4 years. But some key parameters will likely need adjustment each year, things like an acceleration rate or the weight distribution between incentive components. While you may not need to build new plans every year, companies need to continually assess and ensure the plans align with the company's goals."

When should companies start working on their comp plan?

Rob: "A normal timeline for assessing, developing and testing new sales compensation plans is largely going to be determined by the size of the organization, number of roles, complexity of the plans, and degree of change required. That said, a normal timeline for a smaller company may be 4 to 6 weeks to get through these steps while a larger more complex organization would need 3 to 4 months.

"Work out a project plan that allows for assessment, development, testing, and preparation of communication materials to determine when the project should start. Keep in mind that this timeline does not account for implementation of the new plan in your current administration process / technology."

What's the best time to announce the new comp plan?

Rob: "Best practices for communicating sales compensation plans to the sales force would be soon after the close of the prior sales year. By waiting until you have closed the prior year you keep reps from delaying deals to the new year (if they think they can make more by doing so), and it keeps the sales team focused on closing out the year, holding the distraction and excitement of next year's plan details until the start of that plan year."

How does a company assess whether or not their comp plan is working?

Rob: "There are a number of factors that could be considered when looking at the health of a sales plan. We will most often look at the plans through two dimensions:

Qualitative: this is an opportunity to evaluate the plans as they are written to find out how well they align with the goals and expectations the company has of the jobs they are assigned. Through executive management, payee interviews and focus groups you can gauge how well the plans are aligning with the company's sales strategy.

Quantitative: this would be a deep dive into the pay and performance data to find out how well the plans are driving sales and delivering on the original business expectations. Looking at performance distributions, performance analysis and other metrics, you can start analyzing the data in a way that will show where the gaps in the current plans may lie."

What mistakes do companies typically make?

Rob: "One of the more common mistakes associated with sales compensation plans relates to over-complicating them. Studies have shown that three metrics is the optimal number (this is a general finding). When we come across what we affectionately call the "kitchen sink plan" where they have 7 or 8 metrics... this creates a situation where the rep will most often just focus on the one or two metrics where they think they can make the most money."

Any additional thoughts?

Rob: "I would strongly recommend anyone who is interested in learning about sales compensation best practices look into the wealth of information provided by consultants and / or bring a consultant in to discuss your situation. Many consultants will happily provide an hour or two of their time to discuss your situation and provide some basic feedback. It is a great way to test the waters to find out if there is value in getting outside help or if you can manage on your own."

There are a number of books that focus on sales compensation plan design.

• "Compensating the Sales Force: A Practical Guide to Designing Winning Sales Reward Programs" by David J. Cichelli

• "What Your CEO Needs to Know About Sales Compensation: Connecting the Corner Office to the Front Line" by Mark Donnolo

Rob, thanks so much for taking the time to speak with me and offer your invaluable advice on putting together a compensation plan.

5 Signs Your Compensation Plan Needs Revamping

During this time of year, many company / sales leaders consider whether or not to make any changes to the existing compensation plan.  It's an important decision that could impact sales reps' efforts and sales revenue for the coming year.  

In reviewing the way sales reps at your organization get paid, ask yourself if any of these scenarios describe your organization. Might it be time to look at some potential adjustments to the compensation plan?

Few New Accounts

Rather than prospecting for new business, the reps call only on their current accounts, preferring to increase business within those clients. Why shouldn't they? The comp plan pays the same rate of commission on new and renewal business.  

Issue a separate quota and commission for brand new business. Following the "pay for the behavior you'd like to see" school of thought, commission new business at a higher rate. New business will always be more difficult to find and close. Companies grow through a steady flow of new accounts. 

Sales Reps Don't Reach the Top Commission Tier

The company pays 3% on monthly sales $0 to $50,000, 5% on sales $50,001 to $100,000 and 7% on sales above $100,000. No rep has ever sold $100,000. The average rep sells $72,000 a month: $28,000 less than the 7% tier.  

Offer a top tier that's challenging to hit. That's great. If several months go by and no rep reaches that tier - that's OK too. But when no rep ever hits that number, the top tier demotivates the sales staff. Reps look at the goal as unattainable. You might need to hire new reps or set more realistic goals. Whatever the case, this comp plan doesn't drive sales to $100,000+.  

Ignoring the Superstar

Reverse the situation. The company pays 3% on monthly sales $0 to $50,000, 5% on sales $50,001 to $100,000. There is no tier above $100,000. Most reps sell between $85,000 and $95,000 against a goal of $80,000. The superstar of the group routinely sells $110,000 - $130,000.  They receive the same 5% on the additional $10,000 - $30,000.  

Honor and motivate the high-achieving salesperson.  Create a third tier for them. Watching one rep hit that tier proves to others in the group that it can be done, and inspires them to work smarter.

Too Comfortable with Base Salary

During the hiring process, a candidate negotiated a much higher base salary than you wanted to pay.  Motivated to recruit them, you agreed to it.   Eight months later they haven't sold much, and seem content to earn just their base salary. 

Offer a higher training base salary - this helps new reps financially as they build a pipeline. Once the training period ends, reps should be earning more commission or bonus than base salary. This is sales.  They shouldn't be satisfied with just a salary.  If you're in this situation, it's time to get tough and renegotiate their compensation plan.

Reps Don't Understand the Plan

The old adage "a compensation plan should be simple enough to be written on the back of a napkin or explained during a 10 floor elevator ride" still applies. Check in with your reps before the end of the year. Ask them to explain the comp plan to you. If the majority struggle to do so with all or certain parts of it, they find the plan demotivating - count on it. Look for ways to make it more straightforward.

Great compensation plans stretch and motivate the sales force.  Make sure your company has that type of plan in 2015.

If one or more of these describe your situation, call or  email me. I'd be happy to discuss the situation with you.

How and When to Pay Commission

A reader asks, "My company leases land from property owners for alternative uses. Some sales take only one or two months to close, while others take much longer.  Once the deal is signed, my company has to find the financing to re-purpose the property.  On average, securing the financing takes one to two months. We plan to base commission on the dollar amount of the construction project. Given the lag time between closed deals and financing, do you have any recommendations on structuring the compensation plan?"

While this question deals with one company's specific dilemma, similar situations occur in all sales organizations.  For instance a client might sign a multi-year deal and either not pay the entire contract up front or stop payment after one year.  Similarly, a client could return some or all of a large order.

Avoid Distraction

Your sales staff needs the single-mindedness to concentrate on meeting a property owner, uncovering a potential land lease, presenting the opportunity, generating a proposal, and closing the deal. Concern about whether or not the deal receives financing - which neither they nor the property owners have responsibility for or control over - is a distraction. Little good happens when the salesforce loses focus.

Potential Solutions

Solving that problem lies in recognizing and rewarding closed sales before financing gets approved. Frank Armenio, CMA, CFM and partner at B2B CFO suggests the following:

"Given the time lag between closed deals and financing, I would pay a percentage (25% - 50%) of the commission on the deal closing and the remainder when the financing is complete. The deal is not done until the financing is obtained. Further, if the financing falls through the first 25% - 50% needs to be charged back since I believe that would void the deal.

"Experience has shown me that sales reps normally go with the highest up front dollars. Therefore, re-payment on the back-end could take place far down the road."

Options

Frank's plan allows the sales rep to collect some commission up front. In that way your company rewards and recognizes a closed sale immediately, in a manner unconnected to the financing. I support that completely.

Consider Frank's idea. Collaborate and consult with other executives at your company to determine what percentages they deem appropriate. 

What happens when you have paid a certain percentage of the deal up front, financing is not approved, and the rep has a chargeback? I recommend dividing the amount into thirds and deducting it from their paycheck over a three month period.  Allow for flexibility with the starting date of the pay back.

Loss of Financing

If the financing does fall through, where does this leave the rep? You never want them to feel that all their hard work was for nothing, or to hesitate when closing the next deal.  
When a salesperson closes an otherwise sound deal in good faith, offer a "signing bonus" of some sort - either a flat fee or a small percentage of the deal.  Reps would not be responsible for paying this amount back if financing fell through.

Define Terms

To minimize the chances of any deal being turned down for financing, make sure the reps know what constitutes a "good deal."  What should they be looking out for?  Discuss red flags. Neither you nor the reps want to chase deals that fall apart.

Risk and Reward

The profession of sales involves risk taking. Top-producing salespeople are well paid; one reason for that is that no one in your organization has the ability to guarantee any sale.  Keep reps focused by offering a comp plan that acknowledges the time delay between a closed sale and a completed deal, and that rewards the salesperson's effort to go for the close.

(Re)designing Tiered Compensation Plans

A reader writes, "My company's sales compensation plan has three commission tiers. Not once since the plan has been in place has a rep ever hit the highest tier. They told me they wanted to earn more money and seemed excited about the plan at first. I thought reps were supposed to be money motivated. What happened?"

Tiered compensation plans offer layered payment structures. Salespeople earn a larger percentage of commission or bonus as their sales increase.  

As an example:

Sales Revenue	Commission Percentage
$0-$375,000	4%
$375,001 - $500,000	6%
$500,001+	7%

Tiered plans challenge mid-level producers to sell more and reward superstars for superior performances.

Painful truth

Though tough for business owners to hear, offering a lucrative commission plan does not guarantee success. If no salesperson ever hits the top tier, it demotivates the sales staff.

Worse yet, when an unsuccessful comp plan of any type remains in place for a period of time, the salespeople make jokes about it. I know this from experience as both a salesperson and a sales manager.

History

Typically, flawed tiered compensation plans get put in place for three reasons:

• Growth targets
• Extrapolating from a unique customer
• Extrapolating from a unique salesperson

Growth targets

Let's say a business owner decides to grow their company 50% over two years. With little thought to rep workload, sales territories, lead generation, or past performance, they increase the sales quota to match. At the same time, they offer a more generous compensation package.

The owner thinks, "Sales people are money motivated, right? No problem. Sure it will work." But the owner quickly grows frustrated with the lack of stellar results and so do the reps.

Extrapolating from a unique customer

Several years ago, a salesperson closed a large deal - maybe the largest sale the company had seen to date. The business owner wants more sales of that size closed on a regular basis. Who could blame her? It happened once, right?

Before thinking about how and why this particular sale occurred in the first place, the business owner alters the compensation plan to encourage larger deals and waits for them to start rolling in.

Extrapolating from a unique salesperson

At one time that rare breed, the superstar, was in your employ. During their "era" they blew their quota away. They resigned - you guessed it - in a disagreement about money. Vowing never to let another rep leave because they felt they weren't earning enough, you put a higher commission tier in place.

However, none of the current staff has as much talent as the superstar.   Not one has ever come close to the superstar's revenue production. Everyone feels discouraged.

Don't delay

Never stay with a compensation plan that simply isn't working on any level. Take corrective action as follows.

Review the numbers

Analyze the current staff's performance over the last few years. Calculate the monthly / quarterly averages for both the individual reps and the group. Identify the top and bottom performing reps.

Let the numbers guide you toward a more realistic top tier for a new compensation plan. Suggestion: At least 25% of your reps should achieve the top tier each year.

Talk with the reps

Always, always, always... ask the reps what motivates them. What would they like to see in the plan? What has kept them from selling more? Most business owners express surprise at the realistic advice they receive from their staff.

Staffing

Sales staffs need the right combination of talent, motivation, and skills to succeed with any compensation plan. Those skills must be a strong match for the sales cycle of the particular product the salespeople represent.

Do you have the right people and products in place so the sales staff can take advantage of a high performance comp plan?

The right idea

You created the tiered plan to motivate your staff. The success of your business depends upon it. That's the right thing to do. Revisit the existing comp plan. Change the tiers to adequately reflect the performance of your current sales staff for now.

After a period of time, begin to make any changes necessary to upgrade the overall performance of the entire sales organization.

One final note

Many of my first-time clients, upon inspection, have one or more of their salespeople on salary-only compensation plans. While this type of compensation is typical for lots of jobs, it isn't typical for sales.

A lot of business owners persuade themselves (or are persuaded) that commissions "just aren't appropriate" for their business. You don't know how many times I've heard this. Many of these same business owners eventually put in commission plans that resulted in increased sales and a more satisfied staff.

If this resonates with you and you want to reconsider your sales compensation, call or email me.

Realigning Territories (Part 2)

In last month's column I gave a business owner advice on telling a long-time salesperson that they were going to hire a few new sales representatives. Now that the salesperson has been told about the new hires - and is willing to go along with the plan for the moment - here are some recommendations to work as a team to divide up the territory.

Discuss income first 

Assure the salesperson that your decision to hire a few more salespeople has nothing to do with their total compensation (salary and commission) and that they will not take a cut in pay. Let them know that you have some ideas to help them increase, not decrease their income and that you'd like to focus on that. 

When salespeople have a large territory with several plum accounts in it, they tend to spend a great deal of time on farming (account maintenance) as opposed to hunting (new account development). Let the salesperson know that you understand that prospecting was difficult with the geography they had to cover, and that with a smaller territory they will be able to do more prospecting. They might not perceive this as a plus, so you could, for instance, offer to pay a higher commission or bonus for any brand new business that they bring in. 

There are other opportunities for additional income as well. Perhaps you can continue to pay the current salesperson commission on some of their old accounts for an interim period. It is sometimes easier to pay a double-commission during transitions than having a hard cut-off. Now that you will be managing a sales staff you can create a group bonus that rewards the whole team for hitting their goals - both monetary and non-monetary. This can be a great morale booster.

Territory division 

Let your salesperson make the initial attempt to divide the territory in a way that they deem fair. They may surprise you with what they are willing to give up, or they may disappoint you with what they insist on keeping - but either way let them go first. Listen to their reasons for doing it the way they did it. Keep an open mind. You might try the old "I cut, you choose" approach - as in the way kids divide a piece of cake. That way they will think the most fairly about dividing the territory. 

After you consider what they have proposed, start to negotiate. Ask questions like, "Can you see what I'm saying from the perspective of a new hire? or "What would you do if you were me?" or "How would that jibe with my desire to grow the company?" Appeal to their general business intelligence and sense of fairness.

Bring up a hypothetical 

If the discussions are going reasonably well but there are a few things they insist upon, you have to decide how important it is for you to retain them as an employee. If they are unreasonable about a few things, you may have to play hardball. Ask them something like, "If you do walk out tomorrow, what are the odds that you will be able to find an employer who lets retain all of your current accounts and gives you no territorial restrictions whatsoever?" Let them think about the long odds on that one.

Be candid 

This is not an annual review, so their strengths and weaknesses should not be discussed in depth. But be up front about any areas that you need them to focus on. Let them know, for example, if you need them to step up their new business activity or if there are certain geographical areas you want them to focus on. If it has been a long time since they've done any appreciable cold calling, offer to evaluate them and get them some training. Above all, assure them that if your business grows, they will benefit as well. This will reinforce how committed you are to both their career and your company's growth. 

There are other things to consider. The decision to hire additional sales staff needs to be communicated to the entire company as it will be a change for all employees, a transition period needs to be defined, and the whole process needs to be monitored so that the current salesperson does not take advantage of the new sales representatives or continually try to renegotiate terms. I will write about these topics in greater detail in subsequent newsletters.

Are you in the position of having to downsize your sales staff? Is who to keep and who to let go a more difficult dilemma than you thought it would be? A salesforce evaluation can provide you with the kind of information you are looking for to make an informed and unbiased decision. Contact me if you would like to discuss your specific situation.

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Though my clients come from many different industries, the challenges they face are similar. In "Sales Management Tips," I regularly answer questions that have been posed to me by my clients. I hope the answers will help you to solve some of the sales dilemmas you face in your own sales organizations. If you would like to ask a question, please contact me. The identity and affiliation of those submitting questions will be kept confidential.

Realigning Territories

A client asks "In my business, there is one salesperson that's been with the company for years. They have a very large sales territory and call on the biggest accounts within it. To grow my business, I need to hire several more salespeople. This will mean giving at least one of them a part of this person's territory and a few of the good accounts that go with it. My fear is that if I make any changes to their territory my salesperson will quit and all of their account knowledge will go with them, or they will go to work for a competitor and convince some of the accounts to follow them to the new company. In either case, if they do leave and the new salespeople don't work out, my business will suffer.

When faced with this dilemma, most business owners that I work with picture a full scale disaster. Though I understand that it's scary to shake up the status quo, when I try and convince them that the worst case scenario usually doesn't occur, they are skeptical. In this issue of my e-newsletter I will make recommendations for discussing the upcoming territory changes with your current sales representative. In the November issue I will talk about working with them to bring those changes about. 

There are some steps that all managers in this situation can take to retain the original sales representative while adding to the sales staff.

Talk to peers 

Many small business owners have faced this situation. Have lunch with a few and ask them about it. Did they hire additional salespeople? How did that work out? Did the original salesperson quit? What were the ramifications? Would they do it again? What would they do differently? What does their current sales staff look like now? Is the first sales representative still there? The answers may vary greatly from owner to owner, but I guarantee you will come away with some good advice and a much more balanced picture of what you may or may not be facing.

Do your homework 

Make certain that you know enough about the territory to comfortably state that there is enough potential business there for an additional sales representative or two. Come to the initial meeting with solid data on the number of businesses in the area and territory coverage recommendations. If the current salesperson is generating $1 million in the territory, they should be solidly convinced that a second salesperson can bring it to twice that.

Have a business meeting 

Your main goal here is to grow your business, not take anything away from your salesperson, and it's important not to lose sight of that. Meet with them and discuss your ideas for growth. Take the time to talk about the big picture; don't focus exclusively on the need to hire another salesperson or two. Let them draw a few of their own conclusions about the need to increase the sales force.

Ask questions 

After discussing the situation for a while be straightforward and say to them, "In order to realize the growth rate I'm looking for, I may need to hire another salesperson or two. What are your thoughts on that?" If they are initially negative about this idea, don't panic. They are worried about loss of income, loss of territory, and perhaps concerned about having to work a little harder. Let them expand on their thoughts a little bit. Ask questions.

Don't dodge the issue 

If they come out and say something like, "If you give the new person any part of my territory..." or "If any of my major accounts are taken away..." or "If I don't have total say-so over how everything is divided up..." "... I will quit," stay calm. Acknowledge that you know they can quit but that you value their talent and your business relationship. Stress that what you would really like to do is work as a team to figure out a plan for bringing additional salespeople on board. Would they be amenable to that? 

Now that you have told the salesperson about your plans to increase the sales staff and that you want them to remain with the company, you need to start incorporating them into the planning process. Next month I will talk about partnering with the salesperson to make this venture a successful one.

Are you in the position of having to downsize your sales staff? Is who to keep and who to let go a more difficult dilemma than you thought it would be? An overall staff sales evaluation can provide you with the kind of information you are looking for to make an informed and unbiased decision. Contact me if you need help.

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Though my clients come from many different industries, the challenges they face are similar. In "Sales Management Tips," I regularly answer questions that have been posed to me by my clients. I hope the answers will help you to solve some of the sales dilemmas you face in your own sales organizations. If you would like to ask a question, please contact me. The identity and affiliation of those submitting questions will be kept confidential.

Salesperson's Base Salary Too High?

A client asks, "Several years ago I hired a salesperson with excellent references and an impressive history of consistently exceeding quota. Based on this history they negotiated a base salary that was much higher than I typically pay. They assured me that they would earn much more than that in commission and bonuses. Since being hired, they achieve their quota irregularly and have earned little in additional income. To my surprise, they seem quite content. I regret agreeing to this high base salary, but don't know what to do about it at this point."

Managers in this situation often feel embarrassed, duped and frustrated. Sometimes they think they are the only person who has ever made this mistake. They are not. Managers get talked into salary arrangements like this all too frequently.

There are several possibilities for the underperformance of this sales representative. Their track record of quota achievement could have been exaggerated, their references somewhat less than honest. Perhaps a lifestyle change of some kind has made them less money motivated. Though they may have earned more money before, this might be the first time they have had a base salary on which they can live comfortably. Rest assured that whatever the reason, you aren't stuck.

Research Industry Norms

If you don't know already, find out what the average base pay is for a sales representative in your industry and others that are similar. Call colleagues in other areas of the country and find out what they are paying, taking into consideration regional cost of living differences. Then write a new compensation plan that is competitive, within the norm for your industry, and standardizes the base salary that you pay all sales representatives.

Get the Facts

As I so often say in this newsletter, arm yourself with the facts before you sit down and speak with the sales representative in question. What is the actual difference between their sales quota and production? Are they regularly achieving their minimum productivity goals (number of prospecting calls, presentations, proposals)? Is their product knowledge where it should be at this point in their tenure? How long does it take the average sales representative at your organization to start producing? How long has it taken them? Be prepared to discuss these points.

Meet with the Sales Representative

When you meet, tell them that you will be putting a new compensation plan into effect that, among other changes, standardizes the base salary for the entire sales staff. Let them know that you understand this involves a salary reduction for them and that you are willing to gradually decrease their base over a period of three months so they can adjust.

Prepare for Objections

When they protest, tell you that they deserve this higher salary based on past performance, state firmly that they are not performing up to expectations and that if this continues you will be forced to put them on a performance improvement plan. If the discussion continues, start reviewing the particulars of their performance to date.

Impact on Others in the Sales Staff 

Because word always gets out, the other sales representatives undoubtedly know that the individual in question earns a higher base salary than they do and isn't really producing stellar sales results. You can be sure that they resent it. They will also find it demotivating because they feel less valued, and they will question your judgment as a manager. 

If this person had proven to be a superstar sales representative, you could easily justify the large base salary and use them as an example to inspire the rest of the sales staff. But that isn't the case. Before your staff becomes disgruntled or productivity is impacted, step-up and right this wrong. They will respect you for it. 

Obviously, the best way to avoid this problem is to never let it happen in the first place. Do not let a prospective candidate dictate the terms of their base salary ever again - no matter how talented they are or say they are. A truly money-motivated salesperson should be far more interested in commissions and overall earnings than they are in a base salary.

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Though my clients come from many different industries, the challenges they face are similar. In "Sales Management Tips," I regularly answer questions that have been posed to me by my clients. I hope the answers will help you to solve some of the sales dilemmas you face in your own sales organizations. If you would like to ask a question, please contact me. The identity and affiliation of those submitting questions will be kept confidential.

Salary Discussion

A client asks, "Just before completing a phone interview with a prospective hire, they asked me the following, 'Can I make six figures in this position? I'm interested in the job and your company, but if I can't make enough money, I don't even want to start the interview process.' They did not ask the question in a combative way, but I wasn't sure how to respond. Colleagues have told me that money shouldn't be discussed during the first interview."

This is a great question and it can be a very awkward situation for even the most seasoned interviewer.

Discussions of Money

Your colleagues are correct; you should not discuss money in great detail during the phone or first in-person interview. Certainly, you would not divulge any specifics about the compensation plan and here is why. Salespeople making a six-figure income have the experience, maturity, skills, drive and discipline that enable them to earn that kind of salary. Early in the interview process, the candidate should be demonstrating to you that they have those skills and can succeed at the job your company is offering.

However, discussing an income range with a prospective hire is an acceptable thing to do.

Don't Overpromise

If your sales staff has some strong producers on it, but not one of them earns more than $85,000 annually, bonuses and commissions included, your company is not the right fit for this candidate. Resist the temptation to say, "I am confident that a real superstar could make a six-figure income here!" Making inflated promises will result in their resigning after six months or less. Say something like, "the income range for this position is between $70,000 and $90,000. What are your thoughts on that?"

If Tenure is an Issue

Sometimes a company can have a sales staff in which many or most of the sales people are making six-figure incomes. However, few of them made that amount of money in their first year with the company. Whether it is a pipeline, sales cycle, or product knowledge issue, it just isn't possible to get enough traction in that first year. If this is the case, let the candidate know. Especially if they are switching industries, most potential hires will not be deterred if they have to wait a year. They just want to know that the potential is there and that there are many in the organization who are realizing the kind of income they want to make.

Say something like, "First year earnings are in the $70 - $90K range. Second year earnings exceed that amount. My plan is to discuss the compensation plan, in detail, with all candidates making it to the second interview. Have I answered your question to your satisfaction at this point?"

In general, I would look at the candidate's question about potential income in a positive light. They are obviously ambitious, and most companies are looking for money-motivated salespeople. Just keep the discussion about money general rather than specific and don't mislead a candidate about income potential at your company.

What is money motivation? Do you ever wonder whether the candidate you are interviewing is truly money motivated? Find out for sure. Ask them to complete a pre-employment assessment before the interview process begins. To find out more about pre-employment assessments, click here.

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Though my clients come from many different industries, the challenges they face are similar. In "Sales Management Tips," I regularly answer questions that have been posed to me by my clients. I hope the answers will help you to solve some of the sales dilemmas you face in your own sales organizations. If you would like to ask a question, please contact me. The identity and affiliation of those submitting questions will be kept confidential.

Announcing Quota and Compensation Plan Changes

A client asks, "I have set my salespeople's goals and created a new compensation plan for 2005, but there are some significant changes to both and I am concerned about the reaction from the sales staff. How should I handle this situation?"

Issuing sales quotas and unveiling a new compensation plan is tricky. You say you are concerned, which implies that you think your salespeople will not universally regard the new plan as positive.

I will assume that you have a sensible and fair new plan with sound business reasons behind it. Typically, reactions by salespeople may reflect concerns that they may make less money or that they may have to work harder. Some individuals may have to sell more of a product they don't particularly enjoy selling. Others may look for loopholes thinking "the company" is purposefully trying to under-compensate them. Given all this, the best approach is to roll out the new plan in a way that gives the salespeople time to think about it before reacting.

Present the New Plan to the Team

At the end of a regular sales staff meeting, hand out the new sales goals and compensation plan. Ask the group to save any questions they may have for the moment. Present the more important changes and discuss why you made them. Be positive in your presentation, but don't oversell the plan.

After you finish, tell the sales representatives that you understand they have questions, but that you would like them to study the plan first. Ask them to sign up for individual meetings with you that will take place in a few days. Assure them that after you have met with everyone, there will be another group meeting.

Some sales representatives will try and ask questions right then and there, while others will insist they need to meet with you immediately. Don't be intimidated. Stick with your plan.

Hold Individual Meetings

There will be a lot of talk amongst the sales representatives before the individual meetings begin. That's OK. During the individual meetings, take careful notes about their various issues with or questions about the plan. Look for patterns. Think about and make adjustments where necessary.

Meet Again As a Group

At the second meeting, discuss what was brought up in the individual meetings and publicly thank those who may have pointed out an error or persuaded you to make a change. If unpopular parts of the plan remain (and there always will be some), explain why you will not be changing them. Answer any and all questions that come up.

This approach may seem overly structured. But think about it this way: the sales representatives owe you the courtesy of looking at the new plan thoroughly before criticizing it or demanding that changes be made. By meeting with everyone individually, you will get feedback from all the sales representatives, not just the most vocal ones. In the end, this will lead to more buy-in for the new plan, which is ultimately what you want.

Aligning Quota with Business Goals

A client asks, “As we start the New Year, I know the quotas I want to set for my salespeople. What I don’t know is how to motivate my sales force to help me achieve some of my other business goals for the year. What can I do?”

The key to achieving your business goals is to tie those goals directly to your salespeople’s quotas where possible.

Let’s say a salesperson’s annual quota is set at $1.2 million and you have five major products or services in your line. If your salesperson can achieve their quota selling any combination of the five products or services, they will probably concentrate on the one or two that are the easiest to sell to your client base. It’s what’s referred to as selling the “low hanging fruit” and may do little to help you attain your overall business goals.

If, however, you assign a subset of the $1.2 million dollars to each product, the sales quota can be in greater alignment with your business goals. Quota is typically not assigned evenly across the products because prices, profitability, and demand are usually different for each one. As an example, quota could be allocated as follows:

Product	Quota
A	$500,000
B	$200,000
C	$50,000
D	$300,000
E	$150,000
Total	$1,200,000

Structuring the compensation plan this way allows for greater flexibility. If product E is the most difficult to sell but is also the most profitable, you can offer a higher commission on it. The more generous commission structure will provide the motivation the sales force needs!!

A compensation plan of this type needs to be fully explained to your salespeople. Prepare a formal presentation to discuss why you assigned each product the numbers that you did, and how achievement of the goals will contribute to the company’s success. Let them know that you will provide additional product and sales training to ensure they are as successful as they can be. Encourage questions. Create a fun sales contest to get things jump started.

By structuring your quotas in this manner, you are using the compensation plan to help you communicate and achieve company goals.

Best wishes for the New Year!

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Though my clients come from many different industries, the challenges they face are similar. In "Sales Management Tips," I regularly answer questions that have been posed to me by my clients. I hope the answers will help you to solve some of the sales dilemmas you face in your own sales organizations. If you would like to ask a question, please contact me. The identity and affiliation of those submitting questions will be kept confidential.