Great Ideas for Sales Compensation
February 1, 2008
As any experienced sales manager will concede, money motivates salespeople, but so do a lot of other things that are less expensive. Recognition, prestige, sometimes just winning the right to choose the variety of this week’s office donuts can motivate people as well as or better than a trip to a faraway island.
The most important attributes of a sales compensation plan are that it be consistent and easily understood, many security dealers and systems integrators report. This article presents some of their innovative sales compensation programs and motivational techniques.
EMPLOYEES SET THEIR OWN INCENTIVESChuck Lesnewski, president of Cam Connections Inc., Lakeland, Fla., has an incentive program keyed to each individual salesperson.
“Everybody’s doing the same or pretty much the same compensation plan, base and commission,” Lesnewski concedes. “On sales, we try to do it a little bit differently, in that we’re always trying to run some type of an incentive that appeals to our people. We try to build-in excitement by constantly doing something different.”
Lesnewski observed that most incentive plans offer either money or a trip, and usually only allow for one winner. “What we do differently than that is we ask our sales team to give us a list of some things they’d really like to buy for themselves but would like to use somebody else’s money,” he says.
The salespeople complete their lists at the beginning of every fiscal year, with each person listing 15 to 20 things. “The items range from $250 to $2,000. We don’t limit what can go on the list or how long the list can be,” Lisnewski explains.
Items on the lists have ranged from trips to a new homeowner who wanted sod for his lawn. The item also could be a percentage of the total cost of something the salesperson wants. “Since we’ve been doing it, we’ve seen better activity toward achieving that goal,” Lesnewski maintains.
“Say we’re running a 60-day drive for increased service business or RMR or something like that,” he explains. “We might determine it is a $500 goal, and we’ll go on the list and select something for everybody off their list within the dollars they want to spend for that period.
“Therefore, the various dollars on the list help us tailor a program for the individual, which is better than if we had one winner and selected one prize,” Lesnewski asserts. “We use the desire for whatever you would buy if you had extra money in your pocket to drive the program.”
Which of several items that fall within the contest’s dollar limit is picked off the list depends on how much beyond quota the salesperson went and how long the contest is. The list incentive only needs to be used three or four times annually to achieve the double-digit growth the company has had since its founding in 1998. As of December, 2007’s sales revenues were up 47 percent over those in 2006.
The company also offers more conventional incentives, like Valentine’s Day weekends with limousine service and dinner.
The higher commissions paid on multi-year maintenance agreements, which have higher margins, are paid upfront for the life of the contract when it is first sold, rather than each year’s commission being distributed annually as that year arrives.
“We prefer to pay it upfront because it keeps our salespeople happy, and our salespeople hopefully are hunters instead of farmers,” Lesnewski asserts. “The type of customer we deal with is solid.
“If it were to cost us a little because we had somebody go out of business or cancel the contract for external or internal forces within that company, the loss of that contract versus paying upfront and having a salesperson that likes their job, if you will, that’s one of those hidden benefits or hidden costs,” Lesnewski says philosophically.
Commissions on renewals of maintenance agreements are split between the customer service department, which maintains the account, and the salesperson, who receives 30 percent of the renewal’s commission.
“That keeps the salesperson involved,” Lesnewski points out. “You’re still maintaining that customer; you’re still after the add-on business and other selling opportunities that come in.” Any additional business during the agreement goes back to the salesperson, along with the commission for it.
Because Cam Connections is a systems integrator, the company does not receive a lot of monitoring business. What it does receive is handled by a third-party monitoring company. The company’s business is mostly commercial, except for personal security work it does for select commercial customers.
“Most companies set up a situation where it almost is them against us,” Lesnewski says of the relationships between salespeople and their employers. “We try to instill a sense of ownership throughout the whole company. We do that by sharing profits within the parameters of good business and making our people partners with us at all levels of the company.”
MARGINS SLIDE ON SCALEDiebold Enterprise Security, White Plains, N.Y., uses a sliding scale of commissions based on the market to which a salesperson is selling, whether it is large-scale construction, regional construction or national accounts.
“So we developed an incredibly dynamic plan based on the market segment that the employee’s project was sold into to allow a rewards scale that would associate with the type of project they sold,” explains Kevin Engelhardt, vice president and general manager of U.S. operations. “Large-scale construction tends to be a bid-driven market and extremely competitive. Even if it’s a selective bid market, they still have a tendency to be more price-conscious.
“You’re working for general contractors, not end users, so the competition usually drives the margins down significantly,” he explains.
Requiring a static margin percentage on all markets would not motivate salespeople in these price-competitive sectors to be conscious of gross margins, where such margins usually are not attained.
“It allows you to reward the people that are in the higher margin-style business, but it doesn’t allow you to reward those driving a significant amount of revenue to your bottom line,” Engelhardt emphasizes.
“So if you understand the marketplace you’re playing in, and you understand how the associated revenue is going to flow over the period of the project, you can better assess what your business objectives are and reward the salesperson for achieving those objectives,” Engelhardt relates.
Salespeople receive a minimum and maximum goal, and the percentage of their commissions increase as they approach the maximum.
CASH & MORE“Our incentive system is structured around rewarding not only for the volume of work, but also the profitability of work associated with that, so we pay realized gross margin for work,” reveals George West, vice president and division head of security systems for Siemens Building Technologies Inc., Buffalo Grove, Ill. “It’s not just about what you do in terms of proposing it, but the total value chain and how you deliver that project.”
West believes that consistency and simplicity are key to successful sales incentive programs. “It’s got to be predictable and easily understood,” he emphasizes. “There’s always this desire or tendency to try to tweak the system on a regular basis.
“In the last couple of years, we’ve modified the system,” West concedes. “We try not to change it every year, because you want to build that backlog of business that makes the business healthier. They’ll do that more comfortably when they realize whatever they earn today they have a fine probability of receiving down the road.”
The company awards an annual trip to an exotic locale like Hawaii for the top sales performers as a way of repaying them and their spouses for any evening appointments or telephone calls at the dinner table they may have had to take during their successful sales year, West notes.
But winners are not determined just by their numbers. They are nominated by their supervisors and have to be approved by multiple levels of management to receive a letter of commendation.
Then those going on the trip are selected from those receiving the letter on the basis of additional projects on which they have worked, such as obtaining training and achieving certifications.
Those who win the trip five times are inducted into the Hall of Fame and their names are engraved on a large plaque. “They still go as long as they win,” West says of the annual trip. “We have quite a few people who have been there for many years.”
Commissions on multi-year service agreements are paid as each year arrives. “A core part of our business is the long-term relationship we establish with customers,” West explains. “That is an organizational relationship, and salespeople are an important part of that.
“We’re not structured in a way we want the salesperson to sell something and then leave the customer,” he stresses. “Our first project or service we provide to a customer is simply the start of the relationship.
“We desire to engage a team of our employees over the long term to help that customer continually achieve their security objective,” West notes. “So it makes sense to have a salesperson paid over multiple years for service, thereby engaging them in the incentive system.”
No limits are set on salespeople’s earnings. “Another important component is that commissions can’t be capped,” West insists. “You want to provide an environment in which your salespeople can be as successful as they choose to be and rewarded accordingly.”
But Siemens uses more than cash to reward sales employees. “We do quite a few things in terms of a formal recognition system,” West says.
“Everyone is motivated differently – there’s neither good nor bad in this,” he concedes. “For some people, money is the driver. For everybody, money is a component of it, but for a lot of people, respect and the esteem of your colleagues are as important and can oftentimes bring as much, if not greater, value.”
West tells of when he started as a salesperson and was rewarded with a company dinner with his wife and important executives, where he was presented with a certificate for his sales performance. He received the certificate and dinner for several years.
“I got that set of letters 15 years ago,” West reveals. “It didn’t cost anything, but I still have them. How do you create things that have lasting value, that remind the person of the good feeling they had at that time, and provide an ongoing encouragement to strive to that level again?
“The most effective incentive programs are the ones most closely aligned with the type of behavior you want to reinforce,” he concludes.
Sidebar: Incentives Add up to Excellence at ADS SecurityADS Security, Nashville, Tenn., offers four commission plans through the sales division. The compensation and incentives are built into each plan, but the formula changes for each type of plan. These plans are residential/light commercial, large commercial, builder, and customer service.
Salespeople, who are called consultants, are compensated for sales and recurring revenue, including recurring monthly revenue (RMR) from service contracts. ADS Security pays a salary plus base percentages of system sale dollars and a multiple of the RMR.
The company also pays a bonus structure on the RMR with tiered multiples per goal level. Bonuses and awards are given to each plan winner monthly who has the highest average percentage above quota. A bonus and award is given to the consultant who has the highest recurring revenue sold for the month.
Consultants who achieve 100 percent of their system sales and recurring revenue quotas for the year achieve President’s Club status and are invited to ADS Security’s President’s Club annual event. Achieving President’s Club also provides the consultant with a $100 monthly salary increase that can increase to $600 with six consecutive years of achievement and then entry into the Sales Hall of Fame.
The President’s Club is the highest honor given to an ADS employee. The two-day event held each February includes seminars, team building, an awards ceremony, presentations and the final night of entertainment and relaxation.
These events have an annual theme and are held at a prestigious location. Recent events have been hosted in the Nashville area at the Country Music Hall of Fame, the Parthenon, Union Station and the Coliseum.
Consultants who, along with their business units, achieve 100 percent of their system sales and recurring revenue quotas earn the invitation to attend the annual First Alert/Honeywell national convention, a three-day event that includes seminars, team building, an awards ceremony, presentations and themed trips. This year’s event was held at the Westin Kierland Resort and Spa in Scottsdale, Ariz. ADS Security sent 26 couples and received six national awards.
Consultants also participate in Honeywell’s annual Sales Frenzy contest. The criteria for winning prizes are based on the consultant’s sales performance with opportunities to win in four reporting periods. Prizes include shopping online, cash and awards.
Additionally, ADS Security is a shareholder of the Security Network of America (SNA) group and sends the top four consultants each year as SNA Grand Champions along with their guests to an international resort for relaxation. The last trip was to the Westin Resort and Spa in Puerto Vallarta, Mexico.
As an ADS Employee, the consultant also has the possibility of earning a company bonus based on the success of the business unit’s annual performance.
“ADS Security is one of the highest-paying sales organizations among the 30-plus SNA member companies,” asserts Mel Mahler, CEO and chairman. “Of particular note is the high compensation we pay for new monthly recurring revenue.
“These plans differ somewhat between our residential sales consultants and large commercial account managers,” Mahler says. “Our plans are often requested and shared with fellow SNA member companies. As an SNA shareholder, we cannot reveal specific numbers.”
Sidebar: Let Salespeople SellService Works Inc. (SWI), Farmingdale, N.J., saves salespeople time by having other employees obtain leads, design systems and write proposals.
“We employ a director of new business development, who is tasked with making new sales contacts and generating new solid qualified sales leads for the sales team,” asserts Stephen Govel, president. “In addition, I have found that the sales team will many times just shoot a digital image of a sign of a building under construction and e-mail it to the business development manager, so he can track down the correct players and make the appointments.
“Sales individuals have found it is more productive for them to give a small percentage of their commission to the business development department and have them make all the calls to get the appointment and the correct information than to waste their valuable time they can spend meeting new clients or closing projects,” Govel asserts.
“We provide both quarterly and year-end incentives to help keep the staff motivated throughout the year instead of trying to play catch-up during just the last quarter,” he relates.
“In addition, our maintenance agreement commissions are paid ongoing and for multiple years instead of a one-time first-year payout,” Govel continues. “This keeps the sales individual in front of the customer more often, since they have a vested interest in the long-term relationship. It’s a win/win for the salesperson, the customer and our company.
“SWI has instituted programs in the past whereby there are additional incentives for those individuals that surpass their targets year-end,” he notes. “Last year, we took nine individuals to the Honeywell Conference in Cabo San Lucas as a reward for their performance.”