Whore or Wonderboy: What are you paying me to be?

The Problem.

Imagine this scenario:

You find the brightest, most-qualified people you know.  Over coffee you then tell them your idea for changing the world.  About 15 minutes into the discussion they  nod their head, and you swiftly jump on the opportunity to woo them with your wonder-punch of :

“How about you work for me almost for free.  I’ll beat you up while you work really hard.  And then when you do land some business, I am going to take most of it and leave you with a few points….”

And we then we stop and sit back expecting the all-star we are interviewing to jump out tof heir seat, throw their arms around our neck, and offer to sacrifice their first-born child to us as a “THANK YOU”…

<insert cricket sound here>

It kind of doesn’t really make sense does it?  It’s almost silly.  Here we are as accomplished business people without a clue how to inspire the very people who are tasked with inspiring growth.

Kind of like smacking the receptionist who passed you through to the chief executive.  You might get away with it once, but you end up making enemies with the person who could make you really successful.

Now, before you go and remind me that there is more than one side to the story, let me tell you that I agree.

In fact, I got so obsessed with the topic that I reached out to my buddy, Brett Arp, who managed hundreds of millions in sales and marketing compensation for Wyndham’s timeshare division, Wyndham Vacation Ownership.  (Tmeshare is a highly commission driven business where payouts can run 20% of revenues.) Brett’s worked with everything from 100% commission plans to 80% salary plans depending on the role in the organization.  I figured he would have the answer to some of my questions:

The Interview.

Daniel: Brett, you have seen it all.  Why is the sales comp system such a mess?

Brett Arp: Great question.  I think it really starts with the person developing the plan.  How well does this person understand the entire business, the goals of each department and how every variable will impact the comp plan.  For instance, how are the other people in the organization paid and does this plan align with their pay plan?  How will other departments or people impact the person’s performance?  Too many comp plans are developed in a vacuum and I think this is why they are doomed from the start.

Daniel: With most commissions being single digits and the company keeping 90% or more of the revenue generated by a sales rep why don’t more companies take the time time to get the pay plan right?  If I were getting a 10 to 1 payback, I think I would take the time to get it right.  What am I missing?

Brett Arp: From my experience, most sales comp plans are developed or heavily influenced by sales management.  If they are in sales management, most likely they’ve worked under multiple incentive plans over their career and they feel like this makes them an expert.  The other business leaders usually defer to the person’s experience and the plans get developed.  Unfortunately, being on an incentive plan does not make one an expert at developing plans.  Much of what I end up doing when I talk to folks about compensation plan is play devil’s advocate so management is aware of any plan weaknesses.  The goal is to develop a plan that drives certain behaviors while minimizing any unintended negative consequences.  Knowing the strengths and weaknesses of the plan will make everyone’s life simpler in the future.

Daniel: You know my thoughts about the “long term” relationships and building conversations that last a life time.  My experience with comp plans is that they work month-to-month rather than decade-by-decade (which is how long companies would really like to keep a customer).  Talk to me about that.  What’s the right balance?

Brett Arp: Wow, that is a tough question.  Honestly I would have to say the right balance depends on the priorities as laid down by the Senior Leadership Team.  For example, some companies live and die by their quarterly earnings so who am I to say that a comp plan focused on the short-term is wrong when it goes against their entire strategy.  That being said, it is my place to remind them that no matter how much they might want their sales people to develop long-term relationships with customers, most sales people are going to do exactly what their plan pays them to do and that is focus on this month and worry about next month when it comes around.

I keep using the word “most” when talking about sales people and it reminded me of another issue with comp plans.  The majority of the plans are developed based on the average payout when everyone is rolled up.  If you do not pay attention to how a plan is going to impact your superstars, you may just kill the golden goose.

Daniel: Let’s get personal.  Why in the past have I been made to feel guilty by HR when I make a big pay day?  Doesn’t that mean that I am keeping them employed?  Isn’t the company keeping 10x more than I am?

Brett Arp: Assuming the company set up a win-win plan, they are definitely making money when you make money.  A lot of stuff gets paid for with that other 90% but I’ve never understood complaining about how much someone makes on the plan that was given to them.  I think many times it is a jealousy factor as well as someone not truly understanding what it takes to make a sale.  I’m not sure you’ll ever get rid of the pettiness.  Any time I ever heard someone complain about how much a salesperson made, I would just remind them that we are always looking for good salespeople and they are more than welcome to apply for the job.  I’ve yet to have someone take me up on that offer.

Daniel: Call me crazy, but for me in the past it was more than just about the money.  I can sell anything in a big way.  In that way, I don’t want to feel like I am whoring myself out for people who don’t value my input.  What are your thoughts about ego and managing the relationship between high-performers and their executive managers who probably make less than they do?

Brett Arp: I really think it comes down to the corporate culture.  When I ran sales compensation for WVO, the CEO started out as a very successful sales rep and worked his way up through the company.  In that organization, Sales was well respected and always had a seat at the table.  In contrast, I have also worked at a company that was more engineering/product focused.  Sales was not thoroughly understood by management and it continually created problems.  I think the tone really starts at the top of the organization and if the comp plans are well thought out and aligned, then the executive managers will be hitting their bonus numbers too.

Daniel: Everyone wants to incentive cold, hard cash generation.  In my mind that is short sighted, because a lot of the most important parts of whale hunting are not directly tied to the apparent cash side of the deal.  How do I pay someone to consistently produce a memorable experience that will lead to lots of future revenue?

Brett Arp: I hate to keep harping on the same word but it comes back to alignment for me.  Whale hunting is definitely not a 1-man job so is the organization aligned to support this endeavor, both from a compensation standpoint as well as corporate culture.  It is pretty hard to create a positive memorable experience without the support of others.

And to be honest, I think a lot of companies steer away from long-term compensation because it is can be difficult to track.   But if you can track it and regularly report out on it, then long term incentive can be very powerful.

Daniel: You do a lot of consulting for big companies who are looking to get this right.  Can you share 2-3 key things that you always advise clients?  Maybe a few “golden rules” of compensating sales dudes?

Brett Arp: Sure.  One thing I would say is to not try to have the comp plan manage the person for you.  What are the 2 or 3 things max that you want the person focused on and are those variables in the salesperson’s power to impact?  And secondly, think through how your organization is aligned from a compensation standpoint and highlight where you are setting conflicting goals.  By the way, conflicting goals aren’t always a bad thing as long as you aware of what you are doing and why you are doing it.  The problem is most organizations aren’t aware they are doing it.

Daniel: Thanks, Brett…  These are some great answers!

My thoughts.

So I go back to where I started:

1. You expect your sales dudes to be selling your value, so give them a plan that makes them feel valuable.
2. Talk frankly about trading risk for higher commission.  High performers can assess the opportunity on their own.  If you are worth the risk, they will join you
3. Invest more than money in your sales guys.  Time, respect, and thoughtfulness are very important. (Remember: You couldn’t do what they are doing for you.  And unless you don’t care about them leaving at the worst possible time for you, you might want to start building a relationship…

This post is way too long already or I would spend more time sharing more thoughts about hiring and rewarding “high performers”.  Most executives think they want the guy who can “blow the doors off”; they just don’t know what they are getting into…

Having been a sales rep who working my way up to the CEO position, I understand the different business sides to compensation.  I have sat on both sides of the table.  Beyond the basics of percentages, time lines, and quotas you have to remember that this is really about a relationship.  It’s not about you “winning” as an executive.  And it’s not about you giving into the silly demands of a “has been” wonderboy sales exec.

High performers need empathy.  Is that in your comp plan?

Popularity: unranked [?]

No related posts.