SI Review: January/February 2014

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Tip the Scale

Revamp your comp plan to incentivize your top sales folks

By Craig Johnson

Word has it that there are as many staffing firm sales compensation plans as there are staffing firms.

Despite the number of plans, it’s not easy getting sales compensation right. And getting it right is critical. The staffing industry is sales-driven and salespeople are the face of the company. Incorrect incentives can lead to the wrong outcomes where good sales folks are demotivated and mediocre ones rewarded. Endless changes to sales compensation plans can send good salespeople out the door.

Luckily there are tried-and-true ways to do it right. Here are a few strategies.

Start With the End

Scott Wintrip, president of the Wintrip Consulting Group and StaffingU, always starts with the end in mind when he begins working with companies. The key question: What is the company trying to accomplish with its commission plan?

“It’s not just always rewarding of results,” Wintrip says. “It’s about correct behaviors. It’s about creating the right kind of culture.”

And when making a plan, compensation specialists agree that basing commission on margin or profit rather than revenue is the way to go.

“Plans should always be based on profitability, either gross margin or net profit of some kind and not revenue because that’s a trap,” Wintrip says. “I’ve gone in and done analyses and comp projects where companies were actually losing money on people because they based it on revenue.”

There are exceptions and ways to get around the problems of paying based on revenue, but they tend to be harder to manage, Wintrip says.

“The ones that are good have to be based on some sort of gross margin dollars on the transactions,” says Michael T. Willis, chairman of staffing and professional services provider, Willis Group, who has been in the staffing industry since 1971. “Different people put in different qualifiers, but at the end of the day most of the big staffing companies are going to some percentage of the gross margin dollars.”

Keep It Simple

You don’t want sales compensation plans that would take a Ph.D. in math to understand. However, such plans do proliferate. But the more complex a plan, the less effective it may be.

“If the staff doesn’t understand the tenets of that motivation,” says Wintrip, “you’re actually losing some of the benefit of the commission.”

When working with staffing firms, Wintrip often asks internal staff members to explain their compensation plans to him. Sometimes, more than half the staff either can’t explain the plan or he gets different answers from different people.

Firm leaders are often stunned when they hear that, but that just drives home the point that effectiveness is lost as the plans become more complex, he says. On the other hand, when staff members can explain how much money they will earn and what kind of behaviors are expected, that is often the sign of a good company.

Promote Specific Behavior

“A compensation plan should be very simple, very straightforward, and should be designed to promote specific behavior,” says Stacie Habegger, chief sales officer, The Act-1 Group, one of the largest U.S. staffing firms.

A true sales role should be defined by a person’s ability to do a few things: bring in business, retain the business and ensure the business remains profitable, Habegger says. There should be an element of client satisfaction associated with those as well.

However, incentives aimed at promoting behaviors don’t have to be aimed at salespeople only. A staffing firm could create a pot to incentivize others in the organization, Habegger says.

“If everybody could think in terms of how their role generates revenue for the organization and receives some form of incentive for that, it turns everybody into a salesperson,” she says. “And if you’re a sales organization, I think that’s what you want to accomplish.”

Habegger also has used one-time awards for salespeople working with clients who provide testimony about the benefits of the firm through items such as a white paper or speaking engagement. “It’s worth it because of the return on that; you can use that testimony in a number of different ways to engage a lot of other customers,” Habegger says.

Still, companies must provide accurate tracking and reporting on measured results.

“When a salesperson receives their commission check, they need to have something that backs it up, exactly how and why we paid you,” Habegger says. Without the data, it can promote an element of distrust between the employee and the employer, and that’s not a good thing.

Staffing firms also need to monitor the return on investment when it comes to salespeople, otherwise they could find themselves losing money. So measuring the ROI of a sales person or recruiter is critical to a staffing firm’s bottom line. Without metrics, a company could be throwing away cash it can ill-afford to lose.

‘Reverse Robin Hood’

Another key is to significantly differentiate top performers, compensation from that of low performers.

One such process is described as the “reverse Robin Hood” principle by Mark Donnolo, managing partner, SalesGlobe, and author of What Your CEO Needs to Know About Sales Compensation and The Innovative Sale. Under a reverse Robin Hood principle, high performers are compensated at the expense of low performers. But here taking money away from “poor” performing salespeople to reward the high-achieving folks makes for an effective compensation plan.

Don’t Go Changing (Unnecessarily)

Change, when it comes to compensation plans, isn’t necessarily a good thing. Changing plans can sow confusion, and is unsettling to the team.

“I’m a big proponent of keeping your plan as constant as possible; don’t change your plan unless it is necessary,” says Robin Mee, president, Mee Derby and Co., a search firm serving the staffing industry. “Find one that works and stay with it. I think that is one reason that salespeople consider changing jobs.”

Salespeople don’t like being presented with ever-changing compensation plans. But if there are reasons to change it, make sure it’s for the better. Otherwise salespeople may be sharpening their resumes and looking elsewhere.

Mee also points to some companies paying commissions on a biweekly basis, although monthly payment of commission is the most common.

It’s best for commissions to be paid as closely as possible to when the performance of the job took place, she says. And quarterly or semi-annual payment of commissions is unusual for salespeople and more common for management.

However, timing notwithstanding, sales needs to be responsible for what is sold.

“Generally, most firms pay commissions to the salesperson before they collect the money,” says Willis of the Willis Group. “But there needs to be an accountability for the salesperson if they don’t collect the money.”

A sale is only a sale when the cash is in, and a salesperson may have to step in and help with collections.

“All this requires a lot of good communications,” Willis says. If they’re going to be expected to assist in making sure the money comes in, salespeople have to have strong communication with the backroom operations.

VMS vs. Midmarket

As the staffing industry evolves giving rise to different staffing models, new trends are also being seen around sales compensation. Over the past years there has been the development of different compensation plans for salespeople selling VMS/MSP accounts versus salespeople selling midmarket accounts.

The different kinds of profitability and volume associated with those two kinds of staffing models calls for different compensation structures, Mee explains.

She sees that as one of the biggest changes in sales compensation over the last several years.

The VMS/MSP is typically a national or large account sale, is heavily driven by requests for proposals to become a “supplier,” can be a longer sales cycle and a VMS/MSP salesperson may never talk to a hiring manager but rather to the management of the MSP, Mee says. A midmarket salesperson would not typically respond to an RFP but would sell directly to a hiring manager.

Volume may be up on VMS accounts but the margins are lower. Total compensation is calculated differently for VMS/MSP-driven versus midmarket salespeople.

A third role has also emerged in the VMS/MSP world — one of the account manager tasked with growing the account once it has been sold, she says. The account manager is compensated at a lower level than the new business developer — with higher compensation paid for landing the account versus growing the account.

Here to Stay

Love them or hate them, commissions are here to stay.

News reports say some companies in other industries have experimented with doing away with commissions. But staffing experts typically don’t see that as a viable option in this industry.

“I’d like someone to point out a successful company that doesn’t have some form of commission for their sales force,” Willis says.

Craig Johnson is managing editor at Staffing Industry Analysts. He can be reached at cjohnson@staffingindustry.com.

[SIDEBAR]

Base vs. Incentive

When it comes to sales compensation, several experts say having the lowest possible base and the highest possible upside is what works best.

“Some of the basics have not changed from the standpoint of what really works,” says Scott Wintrip, president of the Wintrip Consulting Group and StaffingU. “And what really works in revenue-generating roles is that you reward people for their efforts and that reward is typically in some kind of commission-based compensation.”

However, Wintrip says one thing that has changed is the proportion of guaranteed compensation, base and commission that is paid. While there are exceptions, there appears a general trend toward increased guaranteed compensation and base.

“That has come with a tremendous price,” Wintrip says. “I’ve heard significant complaints from many leaders out there that’s not worked out very well.”

Robin Mee of Mee Derby and Co. also says she has seen an overall trend toward higher base salaries. However, a good base salary is a must to attract the top talent — especially now that demand for top quality internal workers at staffing firms exceeds supply. 

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