TVNewsCheck
Companies readily acknowledge that it is their sales teams that bring in the revenues and generally have the best relationships with the clients responsible for these revenues. So, why are companies so willing to set up situations both in management and compensation that can demotivate the very people on whom company prosperity depends?
By Mary Collins
“You can’t cut your way to prosperity.” This is a phrase I’ve heard in many a budget meeting and long before President Obama began using it in conjunction with the Sequester. In the short term, cuts can bolster the bottom line.
Over the long term however, delaying or eliminating investments in your business can cut your competitive advantage. This is as true for media businesses as it is for those in other industries.
So, why are companies so willing to set up situations both in management and compensation that can demotivate the very people on whom company prosperity depends?
I’ve been thinking about this a lot lately because like you, I oversee a sales team and because it’s the time of year when I’m looking at budgets and the beginning of our new fiscal year. That, combined with the memory of how difficult it was to hire a new sales executive last year, made two articles in the July-August issue of our member magazine, The Financial Manager (TFM), catch my eye.
The first is written by Chuck Kirkham, VP of sales for media rep firm Canadian Primedia Sales & Marketing, looks at ways to develop effective compensation plans for sales professionals. In the second, Barbara Kurka, principal of BFK Coaching and a former HR exec for Katz Media, suggests strategies for retaining top sales talent in what has become an increasing competitive market. Spoiler alert: it’s not just about the money.
Re-Examining Sales Incentives
According to Kirkham, who has worked in media sales and management for about 30 years, sales incentive programs too often focus on the stick rather than the carrot.
To illustrate his point, he describes the sales incentive programs he has encountered over the years, which range from a straight commission to a combination of salary and bonus. “One company that put a cap on the amount of commission a sales person could make is out of business. Other companies offered heavy bonus programs, and they are still in business but have been close to bankruptcy a few times. And a third group of companies that employed a certain three-step process to increase sales are actually growing.”
Kirkham’s three-step process comprises:
“First, if sales executives feel the bonus (or accelerated rate) is not attainable within a specified period of time, they will stop selling and wait for the next attainable bonus period before they start up their efforts again.”
The second disincentive applies when the bonus is attainable. Kirkham notes that in this instance, sales executives are being incented to do just enough to reach their bonus and then stop selling until the next incentive period. “Companies with these bonus programs are encouraging their sales executives to stop selling at some point during the period.”
Another detriment to these types of incentives, according to Kirkham, is they encourage sales executives to control the sales flow in a way that maximizes their financial results rather the company’s. When companies move to counter this by interjecting controls to indicate when it appears their sales executives are manipulating the flow of orders, they create “a vicious circle promoting a lack of trust between both sides.”
Instead, he recommends using a straight-line commission program to erase the stop-and-start pattern by removing the reason for their sales executives to “take a breather.”
He also recommends against companies reducing an executive’s commission rate for the next year because of a concern that he or she is making too much money. In his experience, this practice can turn an incentive into a stick rather than keeping it as a carrot. “If the company has a successful sales executive why hinder their success? A high performer lowers the company’s overall cost of sale — that one sales executive’s fixed costs have not changed while the company’s sales have surpassed budget.” You can’t cut your way to prosperity.
Over the long term however, delaying or eliminating investments in your business can cut your competitive advantage. This is as true for media businesses as it is for those in other industries.
I’ve been thinking about this a lot lately because like you, I oversee a sales team and because it’s the time of year when I’m looking at budgets and the beginning of our new fiscal year. That, combined with the memory of how difficult it was to hire a new sales executive last year, made two articles in the July-August issue of our member magazine, The Financial Manager (TFM), catch my eye.
The first is written by Chuck Kirkham, VP of sales for media rep firm Canadian Primedia Sales & Marketing, looks at ways to develop effective compensation plans for sales professionals. In the second, Barbara Kurka, principal of BFK Coaching and a former HR exec for Katz Media, suggests strategies for retaining top sales talent in what has become an increasing competitive market. Spoiler alert: it’s not just about the money.
Re-Examining Sales Incentives
According to Kirkham, who has worked in media sales and management for about 30 years, sales incentive programs too often focus on the stick rather than the carrot.
To illustrate his point, he describes the sales incentive programs he has encountered over the years, which range from a straight commission to a combination of salary and bonus. “One company that put a cap on the amount of commission a sales person could make is out of business. Other companies offered heavy bonus programs, and they are still in business but have been close to bankruptcy a few times. And a third group of companies that employed a certain three-step process to increase sales are actually growing.”
Kirkham’s three-step process comprises:
- Defining the percentage of the product’s price the company can afford as the cost of sale.
- Defining which elements are to be covered by this cost of sale — such as salary, commission, benefits, travel, entertainment and a car.
- Focusing on commission, “the sole dynamic cost” compared to the other two elements, which represent fixed costs.
“First, if sales executives feel the bonus (or accelerated rate) is not attainable within a specified period of time, they will stop selling and wait for the next attainable bonus period before they start up their efforts again.”
The second disincentive applies when the bonus is attainable. Kirkham notes that in this instance, sales executives are being incented to do just enough to reach their bonus and then stop selling until the next incentive period. “Companies with these bonus programs are encouraging their sales executives to stop selling at some point during the period.”
Another detriment to these types of incentives, according to Kirkham, is they encourage sales executives to control the sales flow in a way that maximizes their financial results rather the company’s. When companies move to counter this by interjecting controls to indicate when it appears their sales executives are manipulating the flow of orders, they create “a vicious circle promoting a lack of trust between both sides.”
Instead, he recommends using a straight-line commission program to erase the stop-and-start pattern by removing the reason for their sales executives to “take a breather.”
He also recommends against companies reducing an executive’s commission rate for the next year because of a concern that he or she is making too much money. In his experience, this practice can turn an incentive into a stick rather than keeping it as a carrot. “If the company has a successful sales executive why hinder their success? A high performer lowers the company’s overall cost of sale — that one sales executive’s fixed costs have not changed while the company’s sales have surpassed budget.” You can’t cut your way to prosperity.
