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CompensationMaster Newsletter Article, April 2002 I spoke with a gentleman recently who was buying a business and wanted to
develop a sales force compensation strategy that would give him a competitive
advantage.
He wanted to lure top sales representatives from his competitors, motivate
them powerfully, and grow his business rapidly to the point where it would
dominate the market.
Here's the approach I recommended he take:
1. Analyze your competitors' plans
First, you need to know what compensation plans your competitors offer. What
salaries, base rates, draws, commissions, incentives, quotas, perquisites and
benefit packages do they provide?
2. Ask sales reps what they want
Far too many firms skip this step, either because they don't care what the sales
representatives want or because they think they already know. Don't make
assumptions—ask! Your sales associates will tell you what they like about your
compensation plans (and your competitions' plans), what they don't like, what
motivates them, and how they would prefer to be paid.3. Find out what you can
afford. Many companies skip this step too. But you can't be aggressive about
compensation without knowing how much your business can afford to pay your sales
force. Analyze your expenses and revenue to find the maximum that you can afford
to pay.
4. Blend what the sales reps want with what the company needs
When you know what your sales force wants and you know what you can pay and you
know what else is available in your market, you are in a good position to create
very desirable plans.
For example, top producers might be frustrated with plans that put a ceiling
on their income. You can create a compensation plan with a lower base and a
higher commission that rewards them for accepting more risk by giving them the
opportunity to make more money.
Sales associates who have high fixed expenses (or trouble managing their
money) might be willing to accept a lower total compensation package in exchange
for the security of a higher base.
People who have health insurance through a spouse's plan may resent having to
pay for coverage through your insurance plan. You can structure plans so people
who don't want benefits don't have to pay for them.
5. Offer a choice
The key to success is realizing that the same compensation plan isn't going to
work for everyone. You'll get the best results if you create several plans, each
meeting the needs of a different group, and then let your sales associates
choose which they prefer.
When you follow this five-step process, you can design a compensation strategy
that supports your business plan, positions your company successfully against
competitors, and allows you to recruit and retain the sales force you need.
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