Organizations are putting more emphasis on incentive compensation, says consultant Joseph DiMisa, CSCP, but not every job is equally suited for more incentive pay. DiMisa offers 13 job factors that effect the pay mix.
DiMisa, Senior Vice President, Sales Effectiveness Practice Leader for Sibson Consulting, is author of the best-selling business book, “The Fisherman’s Guide to Selling.” He offered his tips in a recent webinar sponsored by BLR/HRhero.
Use the chart below, Dimisa says, to evaluate the job factors in the middle column and decide on the appropriate mix of base and incentive.
|
More base/ |
Job Specific Factor |
Less base/ |
|
High |
Market Share |
Low |
|
Finite |
Market Size |
Infinite |
|
High |
Customer Acceptance of Product |
Low |
|
Repetitive and Predictable |
Buying Pattern |
Few/One-of-a-Kind |
|
High |
Sales Support |
Low |
|
High |
Non-Selling Activities |
Low |
|
Frequent |
Team Selling |
Never |
|
Low |
Risk Taking |
High |
|
Known |
Customer Profile |
Unknown |
|
Farmers |
Job Definition |
Hunters |
|
Low |
Control Over the Sale |
High |
|
Low |
Control Over the Sales Volume |
High |
|
High |
Close Rate |
Low |
For example, with a Target Total Compensation of $100,000, the person on the left side of the chart might have 90% base and 10% incentive, while the person on the right side of the chart might have 50% base and 50% incentive.
However, typically, the person on the right would also have greater upside potential, that is, higher incentive for performance beyond the target. For example, the person on the left side might have an additional potential of $10,000 of 1:1 upside potential, and an additional $10,000 of 2:1 upside, while the person on the right might have an additional $50,000 in 1:1 and an additional $50,000 of 2:1.
Thus, the person with the high base (and low risk) has a total upside potential of $20,000 while the person on the right with higher risk has a total upside potential of $100,000, says DiMisa.
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What Performance Measures Are in Use?
Eighty percent of participants in a recent Sibson survey use revenue as a performance measure in compensation plans, with profit or margin a distant second at 46 percent.
Performance Measures Included in
Direct Sales Incentive Compensation Plans
|
Measure |
Percent |
|
Revenue/Sales Volume |
80 |
|
Margin/Profitability |
46 |
|
MBO |
38 |
|
Strategic Products |
31 |
|
Units |
20 |
|
Customer Satisfaction |
15 |
|
Other |
23 |
“Other” performance measures used include product mix, quarterly consistency, discount, budget, and individual challenges.
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Use of Stock Grants or Restricted Stock
Overall, the use of stock grants has decreased for sales people, says DiMisa, but it appears to be increasing in 2012. Most reps say, Just give me the cash. Most sales organizations are restricting stock grants to director level and above.
In tomorrow’s Advisor, why SPIFs are like whalewatching, plus great news—your jobs descriptions are updated and ready to go.
Incentives for salespeople vary greatly company to company. I like the concept that a company look at what is important to them – revenue, profit, customer satisfaction etc.