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What’s With The Lousy Compensation Plan? |  September 02, 2015 (1 comment)


Boston, MA—I have listened to scores of managers over the years talking about their well-intentioned, but generally fruitless, efforts to devise the perfect compensation system to help ‘fix’ under-performing sales teams.

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 plan has the effect of taking unnecessary pressure off their (read under-performing) employees, thus allowing them to perform better.

Other managers choose to fashion a balance between base-salary and commission. This, they suggest, rewards stellar-performance, while still offering the stability of a regular 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, I will strongly suggest is that any comp plan should favor your top performers. It should, to quote a wise sage, focus on the critical few, not the insignificant many.

While salespeople are not motivated by money alone, they do need to be paid in a manner commensurate with their stellar-performance. They need to know that whatever system you implement (their scorecard) recognizes their accomplishments over their less-successful colleagues.

The Kelly Global Workforce Index found that “Almost half of all workers worldwide agree they would perform better if their pay was linked to their performance and productivity, however, too few are rewarded this way.”

How you choose to construct your compensation plan is less important than it must meet, by any reasonable interpretation, the definition of a meritocracy. Anything less will ensure temporary-residency for your best people, until they find a more suitable place of employment.

Peter Smith, the author of Hiring Squirrels: 12 Essential Interview Questions To Uncover Great Retail Sales Talent, has spent more than 30 years building sales-teams at retail and at wholesale. A graduate of Boston College and the Harvard Key- Executive Program, Peter has served on the Advisory Board of Caliper’s Global Conference. He is also a regular columnist for National Jeweler and the Centurion Sales Newsletter, where he writes about sales, personnel and management issues pertaining to Independent Retail Jewelers. Smith has previously worked with companies such as Tiffany & Co., Montblanc and Hearts On Fire and he was recently appointed as president of Vibhor Gems.

Smith’s Hiring Squirrels is available in print or Kindle digital edition on 

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Comments (1):

We had a very successful compensation plan that we used for many years.  It was very simple.  We paid 14% of gross profit to the salesperson.  We had a draw based on their production.  Everyone who produced loved it.  Those who didn’t produce didn’t stick around too long.

By Ellen Lacy on Sep 4th, 2015 at 3:17pm

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