Sales Compensation: Get and Keep Top Talent – Without Breaking the Bank

by on July 15, 2011 · 0 Comment POSTED IN: Webinars for Sales Managers

Video Transcript

Operator: Hello and welcome to today’s conference entitled, “Sales Compensation: Get and Keep Top Talent Without Breaking the Bank”. The general outline for today’s program is included in your handout. There also will be opportunities for questions and answers after the program. As a reminder, this call is being recorded.

Steve founded Journey Learning with over 21 years of sales, management, and training experience. Steve’s ability to blend real-world experience and in-depth knowledge with solid training makes him an invaluable resource.

Steve, the audience is all yours.

Steve Von Hoene: Thank you, Erik. Welcome everyone. I don’t know how long any of you have been in management or what your path to get here looked like. But for me, it was a little bit like marriage, if you will. It seems like the place to be so that was my goal. But I don’t think I had all the facts or really knew for sure what I was getting myself into. So let me quickly say though that I’ve been happily married to the same woman for 26 years so sometimes not knowing everything is okay.

But as it relates to management, let’s see if we can help shed my light on some parts of the job for some of our newer management friends out there while perhaps giving some of our veterans a few helpful ideas as well.

So just to get into this whole, again, the topic of management, there were some things like I said that I wasn’t probably expecting when I first got into it so I might call those the sales management woes.

You know, is the job what you expected or what you thought it would be.

I know for me there were certainly a number of meetings, a lot of planning and integration with other departments and folks that I had to do a lot of reporting that was involved; certainly different HR issues – both problematic things at hand as well as turnover and looking for new reps.

I think last on the list was probably what I was looking for most when I got into sales management which was the opportunity to train or coach and work in developing reps to be good at their jobs. So all those other things kind of come with the package.

And what we’re going to talk about today obviously is somewhat the issue of turnover but also even dealing with existing reps and how do we structure our compensation package so that it is attracting the right people but also giving us the results that we want to get along the way.

So my big question is, you know, are we giving people fish as it relates to our management behavior or are we hopefully teaching them to fish? So we’ll come back to that here in just a little while.

Let’s talk about what are some of the characteristics of a good sales rep.

Again, I don’t know where you are from a corporate structure standpoint or what you may have created on your own but I really highly recommend you come up with a list of characteristics or certainly knowledge and skill points that you want your folks to have when they’re coming into a position with your company.

I think, you know, when I ask this in some of the live workshops we do, certainly people are looking for individuals who are very driven, or, you know, self-motivated. At the same time – again depending on how your sales groups work – we want people who are team players whether they need to team sell with someone else or just understand the workings of our entire organization and function as a team.

Most organizations are looking for reps who are very professional. So folks who handle themselves well come across very positively to customers and prospects. I think one of the key factors is that they’re very knowledgeable not just from a product standpoint or an industry standpoint but about communication in general and a process and an approach to selling effectively.

As it relates to your world, again, different organizations are looking for different kinds of sales reps so do you know whether you need to have hunters on your team exclusively or is it a situation where you just need farmers? Is it a mix of both different kinds of people and/or in fact you need each of those characteristics present in each of your sales people? Usually, that’s kind of the case. So what does your world look like?

And then the last thing that I want to talk about today and this is by no means an exhaustive list. But the last thing I want to talk about this idea that are they entrepreneurial? Do they have that spirit of running their own business?

I’ve worked for a number of companies over my career. For the last eight years, I’ve been on my own. And I know as I look back on my career, if I knew then what I know now and actually behave like I do now when I was an employee for an organization, I think I would have been a lot more responsible.

I think I would have had, you know, a better understanding of the business and how it runs and where do the costs come into the picture and where and how our revenue is generated.

I think the big picture, you know, if we can have sales folks work for us who are able to see the big picture, know where we’re trying to go as an organization and what their role is in making that happen, I think that’s a huge advantage.

I also think if we can have people who are very strategic in how they approach their own responsibilities, whether it be a territory or a particular customer, whatever it might be, that they have a good strategic approach to things, I think it’s also key.

And then this is probably just a reflection of my own personality but I’m not probably the most disciplined person in the world. When you run your own business you learn to be better at that. But again even as a sales rep, to be able to focus on the tasks at hand and do the things that are necessary are very important to making sure that, you know, we hit our numbers and the whole organization accomplishes its goals collectively.

So I think at least a couple of these things relate to the whole idea of compensation. If we are trying to have people understand the big picture or, I should say, if we’re able to have people understand the big picture, then they should also understand how compensation plays into the mix.

So what we want to walk away from today’s session with is having a technique to optimize your commission structure to get the results you need. Certainly we’ll talk about the importance of good communication between you and your reps and other members within the organization and a heads up on a key trap that promotes some mediocre sales results from time to time.

So I think if I were to look at this, I think the biggest challenge – it will be interesting if you guys would all jot down what you think might be the biggest challenge in management. But I think for me the biggest challenge is understanding what is it that motivates my people to do different things. Again, the focus of today’s session is compensation.

So clearly, there are some financial factors as it relates to what might motivate someone, you know, what is their compensation. But I think there are other things that perhaps go into driving each person to perform as we would like them to.

Compensation is part of the big picture of rewards but it’s not the entire picture. So are there SPIFs that you run from time to time that might incentivize people to do things? I even talk about time off as a potential reward. So what is it beyond just the compensation that drives your people to perform? Is it things like recognition? Do you have folks who just like to be in the limelight or kind of get the attention when they do things well?

Do you have folks who, like we said earlier, are they entrepreneurial? Are they independent? Are they able to be part of a team? But is that independence that really allows them or drives them to do the things that we want them to do. Or, you know, is it something else altogether?

I think there’s a long list of what it could be and I think the best way to find it out is to sit down and talk with the folks and find out what are the things that drive you to do the things that you do?

Studies time and time show that when people leave organizations, they may say it’s for the money but when the study is done, really money is not the top fact. Usually it’s who they work for, what their environment is like. So while compensation is important, we certainly want to talk about that, we’re going to talk about it today; I think there are other things that we need to take a look at as well.

So as I said, we’re going to take a look at this idea of sales compensation. If you’re not familiar with the Rapid Learning System, we have a number of what we call “quick takes” which are online modules that run between six to 10 minutes that address a number of different topics – many sales management topics, a lot of topics just for sales reps as well.

So what I’d like to do is have you watch this quick take module on sales compensation, “How to Get and Keep Top Talent Without Breaking the Bank” and then we’ll come back and talk about some of the things that were in this session as well as perhaps another point or two that were not necessarily in discussion.

So Erik, if you want to run the quick take, that would be great.

(Quick Take): Hello and thanks for listening to this quick take learning module from our sales leadership program. Our topic today, “Sales Compensation: Get and Keep Top Talent Without Breaking the Bank”.

It’s always a challenge to strike just the right balance in your sales compensation plan. You want to attract top performers but there’s only so much money to go around. So how do you spend it wisely? How do you know whether you’re paying reps too much, too little or just enough?

There’s no single answer of course. Every company’s situation is different. But over time, many compensation plans drift out of alignment. Business conditions change. Products change. Goals change. It’s tempting to leave the comp plan the way it is because every time you change it, you can feel anxiety ripple through your sales force.

So you go along and everything seems okay until one day, when you find your sales team has gotten just a little too comfortable and you’re vulnerable. That’s what’s happening to Kevin Connor, the sales manager at a company we’ll call Market Leader Inc. Over the years, the company maintained a dominant and consistent market share. But now, there’s a new player in town, Upstart Solutions.

Nobody took Upstart seriously at first. When Market Leader lost an account to them last month, Kevin wasn’t too concerned. But now, he’s lost another customer so he’s starting to pay attention.

Kevin asks around and everybody tells him the same thing about Upstart. It’s not their product. It’s not their pricing. It’s their sales force. “Kevin, your crew is good,” a customer tells him.

“But Upstart’s sales team is, well, how do I say it, they’re hungrier. They really went after our business.” That comment reminds Kevin of something.

A month ago, he was on the verge of hiring Lisa Myers, an experienced sales rep when she suddenly backed out. She said she’d gotten a much better offer somewhere else. It turns out, she went to Upstart.

“That must be their secret,” Kevin concludes. “They’re buying talent.” Kevin checks her out and sure enough, under Upstart’s bonus structure, top earners can earn significantly more than they could at Market Leader.

At this point, if you were Kevin, what would you do? Would you ask your CEO for a bigger sales budget so you can attract better talent? Do nothing and hope Upstart falls on its face? Or, update the recruitment ad to emphasize Market Leader’s fun, family-friendly environment?

Kevin’s choices are not easy. Sales compensation decisions never are. There’s so much at stake. Make the wrong move and you end up losing good reps, losing sales, losing customers. So what do you do?

In this quick take, you’ll learn a technique to optimize your commission structure to get the results you need, how to head off the greatest pitfall of changing your comp plan and the key trap that promotes mediocre sales results.

So let’s get back to Kevin. One option is to do nothing and hope Upstart bends itself into a hole. But Kevin doesn’t like the idea of waiting for his competitor to make a mistake.

Another approach is to change the recruiting strategy, emphasizing the benefits of working for a great firm. But he doesn’t think warm and fuzzy will get him the kind of reps he needs.

So he decides he’s going to have to talk to his CEO, Mark), and get more money. Kevin lays out the intelligence he’s gathered and says, “Mark, Upstart is eating our lunch. We’ve got to take bigger commissions or we won’t be able to attract the talent we need to compete.”

“Nonsense,” growls Mark. “We can’t increase the sales budget and we don’t need to. I’ve been through this before. Upstart’s overpaying their reps. You’ll see. It’s not sustainable. We’ll wait them out and when it’s all over, we’ll come back and pick up the pieces.”

So Kevin waits and waits but Upstart shows no signs of slowing down. In fact, its sales kept growing. Then one day, Kevin gets a phone call that really gets him scratching his head. His old colleague Maureen is a sales manager in a different industry. “Remember you asked me to keep an eye on Upstart? Well, we just interviewed a couple of their reps. They say the pay is lousy over there.”

“Lousy? No way! They’re attracting top talent.” “Not the trash part, Kevin. You said Upstart had great reps. But believe me, these two were not the cream of the crop.”

Later that evening, Kevin mulls over what Maureen told him. He reviews the sales figure. He’s got a lot of pretty good reps. Some though he’s going to have to get rid of. But he’s only got a couple of real stars. Suddenly, the pieces fall into place. “I’ve got it,” he says. “I know what Upstart is doing and I know how to beat them.”

Have you figured out what Upstart is up to? Here’s a hint: Upstart’s sales budget isn’t out of line. As a proportion of sales, they’re paying about the same in total commissions as everyone else. Here is what Kevin found out. They’re not spending more on their comp plans. They’re just spending it differently.

Before Upstart entered the market, it benchmarked the industry. The market was extremely stable. Nearly every supplier’s commission structure was about the same, including Market Leader’s. Reps stayed put and so did accounts.

Here is what the commission structure looks like in the industry. It’s fairly difficult. As reps sell more, their commission rate increases. So what did Upstart do? It paid above market on the top end of the scale. Top earners could earn more at Upstart than anywhere else in town. And to pay for them, Upstart set commissions below the market on the low to middle part of the range.

In total, it wasn’t paying any more than its competitors but look what happened. Where would you want to work if you were a top performer? At Upstart. If you were a so-so performer, where would you want to work? Somewhere else.

So the top performers – green arrow – migrate toward Upstart. And its low performers – red arrow – somehow lands a job there. They don’t stay long. They can make more somewhere else. Upstart created a self-selecting system. Over time, the great people stay and the losers leave.

So now, Kevin knows what he has to do to compete with Upstart. He has to revise his compensation structure to pay above industry average at the top and less at the low end. And he doesn’t need a bigger sales budget. He can do it all with the money he has.

Will it be easy? No way. He’s going to get pushed back from the rest in the middle of the curve – the ones who have mastered the art of getting by. They make a pretty good living without much hassle. “It’s not fair,” they’ll say. “This is just an excuse to cut our pay.”

The new pay structure will light a fire under some of the mid-range performers. They’ll change their behavior and go after the higher bonuses. But most won’t want to change and they’ll leave the company. Then, Kevin will replace them with reps who are more talented and hungrier. But it’s vitally important for Kevin to communicate the reasoning behind the plan especially to his top reps. It’s a tough challenge.

In fact, that’s the biggest pitfall when you change your comp plan – not making absolutely sure that your people understand why the plan has to change. Kevin’s people need to know that the company isn’t cutting commissions over all and that there’s a lot more upsides than before. It won’t be an easy sell. But in the face of tough new competition, it’s a matter of survival.

Kevin will also have to work hard to make sure that Mark, his CEO, understands the plan. Otherwise, you know what will happen. Mark will be looking at the paycheck of top earners that come up through mail and asking, ‘Why are we paying all these people so much?” Kevin has to be prepared to show that while top earners are getting more, the total sales budget remains competitive.

Kevin’s company fell prey to a common condition. It led its compensation plan drift toward mediocrity. Why does it happen? Well, it’s the easy way out. Everybody gets a little too comfortable.

Everybody knows what their competitors pay and they just match it. Nobody wants to price work for talent. Times are good, everybody’s doing okay – why rock the boat?

That’s the key trap that promotes mediocre sales results – letting the comp plan drift until there’s a crisis. It’s a trap because sooner or later, somebody is going to rock the boat. One of your competitors is going to make a grab for market share or an aggressive new competitor is going to show up. And if you don’t adjust your plan as you go, reps get invested in the status quo and it’s even harder to change later.

So it pays to constantly review your compensation structure to be sure you’re getting the best possible return.

Once again, here is the concept in summary. Benchmark your industry’s commission structure. Pay above market on the high end. Pay below market on the low end. Over time, you’ll attract top performers and drive away low performers.

Now, it’s not a simple fix, of course. You’ll have to make some adjustments to get it just right. If you starve the low end too much, you may not be able to attract new talent especially people who have a lot of potential but need development. And you could unintentionally encourage reps to focus too much on quick wins at the expense of long-term account development.

It’s a delicate balance. But even a small adjustment can be enough to tip the scales in your favor. Market Leader may not even have to match Upstart’s package dollar for dollars because it has other advantages that Upstart can’t match.

As long as its pay is competitive, reps would probably rather go with a larger company that has an established track record. Kevin can use those advantages to put the squeeze on Upstart and build the sales force he needs.

So Kevin’s right. He knows exactly how to beat Upstart at its own game.

[Audio Break]

Steve Von Hoene: Okay.

So there is the quick take on the whole idea of sales compensation. And as we said a few minutes ago, certainly there are more things to consider than just pay. I mentioned that in the quick take as well, large company, the security of that and potential other benefits as well. But I think the message we’re really trying to get across here is if you’ve got or you’re looking for top performers, then you need to pay them more.

It doesn’t mean your budget, your sales expense budget need to get out of whack. It just means that you’re going to need to balance it off on the lower end to the people who aren’t getting the job done.

As I think it stressed in the quick take, I hope it was clear, communication is the real key here. And I even go so far as to say which we’ll talk about in a minute here again, when you’re bringing a rep into your organization, I’d say start right then.

Like I said earlier, find out how entrepreneurial are they, what’s their vision like, you know, how big picture focused can they be and how aware are they of the competitive profile of the market.

And if you can start your reps with the idea that, “We constantly need to be competitive both with our own products and offerings but also in the pay that we offer our people, we want this to be the best place to work. Therefore, we want to pay people according to their performance.”

If you set that message, set that tone up front, then it’s much easier to deal with it in the middle of the game. Now, many of us, you know, we’re not brand new organizations. We’re not all looking to hire an entirely brand new sales force. So you’re going to deal with people who have been around for a while.

If you can afford to do it, I would take the time to ease into that conversation with them. Find out who are the folks that you have. Find out out of the folks you have, who are the most entrepreneurial, who have that kind of vision that we’d like them to have and begin to kind of bring them to the same realization.

If we don’t, then this whole idea of just letting things go with the flow is what we talked about in the quick take of allowing things to drift toward mediocrity. And not only will your compensation be mediocre as it looks compared to the rest of the industry but clearly people’s performance will also become more mediocre and we don’t want that.

Here’s something that I wanted to introduce. I think as it relates to this whole idea of communication, I like to think about kind of taking somebody from where they are to where they want to be. And clearly, as we look at our folks and their careers where this apply, so I talk at about SPANning some potential gap or some distance from where they are to where they want to be.

And as you see as the slide is animating here, popping in with the different full words for the acronym, SPAN stands for “setting expectations”.

Again, whether it’s with the brand new rep or if you’re going to go back to your existing force and potentially change the way things have been done, I think you need to get clear with them what your expectations are of them and allow them to communicate back to you what their expectations of you are.

I think it’s a two-way street. And if we’re going to ultimately develop reps or if we want reps who are going to be very collaborative and partners with us and our organization, I think it’s fair to get expectations both ways.

Then as we go forward, to provide feedback to them in terms of how we see how they’re doing in terms of their performance and also to get feedback from them, how are we doing in terms of meeting the expectations that we agreed to at the beginning of the game here.

As that all goes, we need to analyze the results of course and see if the performance is where we want it to be. And then whether it is or isn’t, then the next step is negotiating some kind of path forward. But again, at the root of all of this is some constant, clear communication with our folks so that they know where we expect them to be and where we see that they are.

Again, there’s all kinds of benefits. Obviously, the clarity that I just talked about. But I think people also are held accountable.

When they know what our expectations are of them and we kind of set the tone that we’re going to check back in on a regular basis, ultimately I hope back to one of the things I mentioned at the beginning of the session today, we begin to teach them to fish. We hold them accountable and develop that entrepreneurial spirit that I think we would like to have.

Again, I think – I call it the three C’s – the communication, the cooperation with the goals both ways and our collaboration in terms of figuring out what’s the best plan going forward.

I think if you work with your reps and they have this big picture vision, they understand where the compensation at your organization is compared to the competitors and how the market is responding, how customers are responding to the performance of, again, those competitive reps.

They should be able to collaborate with you to figure out, “Okay, what’s the best way to go here?” Whether it’s adjusting the compensation plan or adjusting maybe different products or services or marketing efforts or whatever it might be.

I think if we can get our people on the same page with us and working towards the same goals, then this whole idea of revisiting compensation just falls right in line with this whole idea of collaboration.

And again, I said this a couple of times now, maybe the best thing of all is we teach them to fish. We are developing people who could absolutely take our place when the time is right.

And I think that’s another one of the goals of management, is to develop people that can rise to the next level and those kinds of individuals understand this whole issue of compensation and parity and everything else that goes into making sure that we’re getting the performance we need and balancing it off with the kind of benefits and compensation that are fair.

You know, an interesting point I’d like to make as well, when you are hiring your reps, I think you need to be cognizant of and a little bit careful of hiring an entire team of people who ultimately want to move up the management ladder. You know, as I said at the very beginning, I didn’t know for sure what all I was getting into when that proposition become possible for me.

So I think it’s a good thing – again along the lines of this clear communication – to make sure that they know what is involved in the job if they ultimately get there. But like I said, if you have an entire team of folks who want to move up, if you don’t have that many openings, they’re going to get very frustrated that there’s no room to grow.

So part of your team needs to be made up of folks who are lifers, if you will, people who want to be in sales for the long haul. They may have some of the aspirations that some of us had when we were looking to get into the management of coaching and developing other people.

But if you can structure your job responsibility and roles of different people, such that you can allow some of your more senior reps to do those kinds of things when they want to to be that coach or that trainer for the new reps, they don’t necessarily need to move into management if that’s what they’re looking for.

And as many of us know, it’s not always for the money. A lot of our salespeople make more money than we do. And in my opinion, if your organization is set up that way, then that’s a good thing. I think the folks who are out there on the street getting it done everyday, they should be making money that’s commensurate with that effort. And if that means they make more than their boss, so be it.

So I think if we start with SPAN and get clear on our expectations on all those different points, we’re going to be in a good position. Again, figure out who are your entrepreneurial reps. And I think obviously these are things we can do right now. I would say go to your team and find out who has the strategic approach to their own territory, for a start.

But then who also is down into all of the challenges that the organization is facing and what are the goals of the organization and what kind of ideas they have in terms of how they can help us get there.

Once you get that conversation going and that kind of a dialogue, I think addressing potential change in compensation is, again, a much easier conversation to have. I think obviously you yourselves need to understand what is the competitive landscape of the market you’re in and what are other people paying.

You know, the quick take talked about a situation where the industry was pretty comparable from one competitor to the next – one company to the next. But if your situation is not that, then obviously that takes a little bit of a different approach, another way to look at things.

And you need to be able to communicate to your people, “Do we want to be the place where we’re the top paying organization or is there a greater package of benefits that we can offer people?”

And then I think, again, work with your folks to create a plan, both from a compensation standpoint and all these other aspects that will ultimately yield the results that you want. So I think in terms of the time we have today in this topic of compensation, I think those are the key points that we want to get to.

Now, to talk about, again, a little more of Rapid Learning and kind of the quick take experience that you saw a moment ago, when you signed up for today’s webinar, you were automatically entered into our system and given a free trial to the Selling Essentials, what we call Rapid Learning Center.

For the next 30 days, you’ll have full access to the program we watched today on sales compensation plus dozens of other topics and categories on sales skills as well as management topics, things all through there.

So let me walk you through how to get access to the site. What you see on the screen right now is the log-in screen. So during the program we emailed you a web address to get to this point, your user name and a password. So if you didn’t get this email, just give us a call and we’ll get you set up in that regard.

If you already have access to this site, then you can log-in using the credentials you already have. And again, if you have trouble logging in, give us a call and we’ll help you out.

Now, to get to the compensation quick take that we watched today, you’ll once you get into the site here – technology is good when it works really well. Erik is going to log us in and he will show you where the link is for today’s quick take hopefully. A couple more tries here.

Well, if not’s working – it looks like it’s not cooperating with us here today – once you log in, on the right hand side you’ll see almost like a table of contents. You’ll see a list of different quick takes that are viewable. And the one there under the management topics will be available for sales compensation.

You will also notice within that page there is an area to invite other individuals within your organization. Here we go. So on the right hand side of the screen over here you’ll see Quick Take Desk Modules.

You can find the one over here on sales compensation. Also you’ll see at the bottom, right below the third bullet area there, it says “Full view list of all management quick takes”. If you go there, then you ca find the one on sales compensation. As you see here it’s fourth from the bottom.

So you can click on that. And as I said, if you go back to the home screen at the top there, you’ll see then an opportunity to add users across the top as well so you can invite anyone else in your organization. Just put their name and email address in. They’ll have the same full access to this system.

And finally, we’re happy to give you a free tour of the whole Rapid Learning Center. Basically we’ll walk you through, answer whatever questions you may have and show you how we can help you make these concepts stick both for your sales and the modules that you may ultimately get your sales folks signed up for.

So that’s it for today. Thanks for joining us. I hope you enjoy your trial for the Rapid Learning Center and I hope you have a great afternoon. Happy selling, everyone.

Operator: Thank you for attending today’s conference.

Both the Rapid Learning Institute and Steve Von Hoene are committed to delivering the most valuable, information-rich programs that you would feel confident recommending to your colleagues. We value your feedback and comments. Thank you all very much.

END

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