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Searching For The Perfect Compensation Plan |  March 18, 2015 (2 comments)


Boston, MA--I have listened to scores of managers over the years talking about their efforts to fix underperforming sales teams by devising the perfect compensation system. Some managers choose to pay a higher base salary and no commission. They argue that removing the stress that comes from a performance-based compensation system has the effect of taking unnecessary pressure off their employees, thus allowing them to perform better.

Other managers choose to fashion a balance between base salary and commission. This, they believe, rewards stellar performance while still offering the stability of a predictable wage. Still others shape a compensation plan that is all about performance, believing a system that rewards the top performers and challenges lesser performers is the right way to go.           

While there are few hard and fast rules about the perfect compensation system, what I will suggest is that any system implemented should favor the best performers. It should, to quote a wise sage, focus on the critical few, not the insignificant many.

Compensation systems that attempt to counteract a bad-hiring culture will fail. You need to have a compensation system that rewards your very best performers.

Top salespeople are not motivated by money alone, but they do need to be compensated in a manner commensurate with their stellar performance. They need to know that whatever system you have in place rewards their accomplishments over their less-successful colleagues. It doesn’t really matter how the compensation is shaped as long as the scorecard, in the final analysis, shows the real movers and shakers at the top of the list. Anything less is a temporary residency for the best people until they find a more suitable place of employment.

There is no compensation plan that will turn someone without sales wiring into a productive sales person. You may see temporary improvements, as a consequence of a new commission system or bonus plan, but the best performers, those with the inherent wiring for sales, will continue to be the best performers, and those who are not wired to make their living in sales will under-perform. 

You must pay your top performers enough to take the issue of money off the table. No matter what your compensation plan looks like, the goal should be that it serves as a meritocracy. Those salespeople who perform the best ought to be paid the most. And those folks who do not perform should have no entitlement to a compensation plan that rewards mediocrity.

Rob Dobelli wrote in The Art of Thinking, “In Ancient Rome, engineers were made to stand underneath the construction of their bridge’s opening ceremonies. Poor incentive systems, on the other hand, overlook and sometimes even pervert the underlying aim.”

Salespeople, good and bad, ought to be made to stand underneath their bridges, to reap the rewards of their endeavors or to assume responsibility for their poor performance. How you construct your compensation plan is open to interpretation. That the plan be based on meritocracy should be immutable. 

Peter Smith, author of Hiring Squirrels: 12 Essential Interview Questions To Uncover Great Retail Sales Talent, has spent 30 years building sales teams at retail, and working with countless numbers of independent retailers as a brand-executive, to offer his counsel and advice on personnel matters. A graduate of Boston College, he has served on the Advisory Board of Caliper’s Global Conference and is a contributing panelist on the KR Executive Group’s Talent Blog. Smith has worked for Tiffany & Co., and was executive vice president of brand development for Hearts On Fire, where he authored the Menu For Success, a roadmap for retail success.  Smith’s book is available in print or Kindle digital edition on 

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Comments (2):

I couldn’t agree more, Peter!  We at Performance Concepts have been crafting hiring, training and compensation strategies for luxury retailers based on the “HardWired” concept for nearly 20 years.  It is certain that no compensation plan, regardless of construction,  will reverse the effects of a bad hire, and there is no question whatever that the ultimate goal of an effective compensation plan is to drive and reward top performers.  In our experience, the best (and most cost-effective for business) plans are those that, while satisfying this objective, also build in rewards for effective team performance.  It’s tricky, but possible!

By Kate Peterson on Mar 20th, 2015 at 2:35pm

Kate, It sounds like you’ve got your finger firmly on the pulse. Thanks for your comments.

By Peter Smith on Mar 20th, 2015 at 5:49pm

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