Keep sales stars with the right compensation plan
As the U.S. economy strengthens, don’t be surprised if your best salespeople ask for a raise — and if they don’t receive it, leave for greener pastures. To keep good people, you not only need to offer a compensation plan that acknowledges job market competition but also motivates your sales staff to work hard, focus on customer satisfaction and remain loyal to your company.
Pros and cons
Traditionally, companies have offered salespeople salary or commission. Each has advantages and disadvantages.
A straight salary or hourly wage provides employees with a stable income, which is particularly welcome in industries with seasonal swings. Salaried sales staff also have less incentive to sell customers unneeded products and are more likely to cooperate with each other. For employers, fixed compensation costs make budgeting and forecasting easier. The downside? Salaries don’t necessarily motivate aggressive selling.
Commissions — paid either as a percentage of sales or profit margin — tend to motivate salespeople to develop their sales skills and pursue leads enthusiastically. However, commission-only compensation can encourage salespeople to focus only on big sales, make promises your company can’t keep or sell products customers don’t need.
Salary or commission may work in certain industries or companies. But most businesses find that a combination approach — a low base salary plus commission — creates security for salespeople while motivating them to step up their game.
To further encourage high achievement, think about paying your staff bonuses based on company performance, but tied to individual achievement. For example, everyone might receive a certain minimum bonus, but one or two star salespeople might be awarded an amount several times the minimum.
If you decide to add bonuses to your compensation program, consider basing them on profit rather than revenue. This gives sales staff an incentive to hold down expenses and cooperate with other employees. And if you want to emphasize short-term objectives over long-term ones, offer quarterly instead of yearly bonuses, or vice versa.
Review and revise
Determining what combination of salary, commission and bonuses will motivate performance and reward loyalty generally involves some trial and error. At the very least, review your sales compensation plan annually or whenever you adopt new strategic objectives or change product and service lines.