Selling a compensation package to the sales staff

Add sales staff to the list of hard-to-find professionals. Then review your rewards package to ensure compensation and benefits are designed to compete for the best talent.

Sales employees have more employment options than ever before and are readily changing jobs to further their careers and to improve work-life balance. The
Conference Board of Canada has forecast that sales people will be one of the most in-demand professionals for the next 10 years.

Attracting, retaining and motivating this group is increasingly challenging for corporations and this is an area that human resource managers can make a clear and measurable contribution to company success.

In this era of record-level employment, sales positions can remain vacant for months on end, putting a drag on financial results and slowing growth. Sales executives have become acutely aware of the heightened need to attract and retain top sales talent, and are looking to human resources for help in improving “the deal” offered to those in the field.

Finding and holding on to top talent is one of the key drivers of sales effectiveness. Organizations such as Cisco, Hewlett Packard and PeopleSoft attribute much of their success in the marketplace to focusing on developing outstanding human capital through their rewards programs.

The key for many firms is looking beyond pay, redefining “the deal” to improve the elements that contribute most directly to getting and keeping top-performing sale personnel. Central to a strong rewards program is understanding how to structure all of the variables not only to motivate, but to direct and align sales behaviour with corporate business priorities.

Which elements of the rewards program matter most to sales people? It depends.

Just as with customer loyalty projects, it pays to invest in research that uncovers what each segment of the sales staff population values most, and then to structure a total rewards approach.

What is a totalrewards package?
A total reward package is the bundle of all reward elements presented to the employee. The four major elements are:
•learning and development; and
•work environment.

The total reward package defines and delivers the employer-employee deal. Well-designed packages reflect the priorities of the sales force and reinforce the overall business strategy and desired selling behaviours. Basically, total rewards encompass every single investment that an organization makes in its people. Including salary, bonus, pension, medical benefits, disability, training and workplace climate. However, more intangible elements, such as high-profile work assignments, developmental opportunities, flexible work schedules and the chance to be a part of a pioneering team cannot be overlooked. Interestingly, in most cases, people say the intangible rewards are the main reasons they select a job or stay with their employer.

Research suggests pay and benefits are taken for granted as a core part of rewards and viewed largely as only a baseline for comparison. They need to be competitive and attractive and in line with an individual’s sense of his or her “worth,” based on skills, education and experience. And they must be managed effectively and consistently to ensure they continue to deliver their part of the overall program.

But once that baseline is established, the real draw for people is the rest of the package. That’s where companies have a chance to distinguish themselves from the competition in recruiting and retention, to create a sense of shared destiny and focus on performance with the sales force.

Holistic approach is critical
Rewards programs should be evaluated holistically. However, companies historically have designed and managed the programs in each of the four quadrants separately. As a result, the programs tend to be disconnected from one another and from the broader business strategy. They may actually undercut one another and even hamper rather than support a sales rep’s ability to meet goals.

When such programs are developed in isolation, the projected costs are often viewed in isolation as well. While each may be on target with respect to competitive practice, when viewed collectively the entire program may prove to be in excess of competitive norms.

The four total rewards components can also conflict and inadvertently send mixed signals to employees. For example, in a highly customer service-driven business, the ability to make instant decisions to help customers may be the single most important emphasis for the sales force.

However, if training programs are still focusing on old-style “transactional” behaviour, sales representatives may not be developing the service orientation and relationship-building skills they need for the company to succeed.

Learning and development
If pay and benefits represent “transactional” rewards, learning and development and work environment represent “relational” rewards that are much more difficult, and sometimes impossible, for a competitor to imitate.

However, studies show that learning and development is increasingly important to employees, especially career-oriented employees and those with hot skills. This includes sales reps.

While most large companies have always offered training to sales employees, sometimes at considerable expense, the broad area of learning and development has not traditionally been considered a reward. Yet today, when most college and university graduates expect to have multiple careers across multiple companies, reps are seeking a steady supply of new skills to ensure they always have career options beyond the walls of their current employer.

Superior learning and development opportunities can be a potent tool for attracting employees. Take for example the financial management-training program at General Electric or the sales and marketing training program at IBM. These entry-level training programs are so highly valued by prospective employees that they have become clear differentiators for both firms.

Companies in rapidly changing industries, such as telecommunications, electronics or pharmaceuticals have even greater requirements for continuous learning and skill-building programs. While there is a risk that some talented sales people will undergo the training and leave, this is mitigated if employees perceive that the company offers adequate and timely opportunities for career advancement.

Coaching, constructive performance feedback and the opportunity to advance represent additional reward elements that reps continually assess. Over the last decade, companies have tried a variety of approaches to improve their performance management and development processes. Both are critical to engaging sales employees and improving productivity. However, these efforts have yielded mixed results.

Effective coaching, of particular importance to reps, depends in large part on the level of company investment in sales management training and on a commitment to holding sales managers accountable for both process execution and performance management results.

One best practice is to tie part of a sales manager’s incentive pay to the number of direct reports achieving a goal. This tends to focus coaching time on those reps most in need of coaching — the ones who are not meeting goals.

If one or more of the following conditions are present; it makes sense for the sales force to have a tailored compensation program:
•Sales management objectives require reinforcement. Compensation serves as a channel of communication between sales management and the field. Without day-to-day supervision many sales representatives will set their own priorities and ignore management’s directives to focus on more difficult tasks (for example, securing new accounts and selling profitable products).
•Sales representatives can create their own value. Does the sales rep have to persuade customers that they need the product, process or service? Do numerous, often indistinguishable, alternative sources of the product, process or service exist? Are these alternative sources formidable competitors that aggressively seek the same business from the same customer or prospect base?
If the answer to any of these questions is yes, it means the sales representative can create value for him or herself, and the company must infer some form of incentive compensation so that income delivered reflects income deserved on the basis of productivity.
•Incentive compensation is a competitive necessity. Competition for sales talent includes all organizations that could employ the sales force, without significant retraining, to sell their products or services. The competition consists of not only direct industry competitors but also other companies whose selling tasks are similar. If competitors layer an incentive compensation opportunity on top of the sales representative’s base salary, then a company should consider doing it as well.
•The company has limited resources. Turning part of the sales compensation expense into a variable cost is particularly critical to companies with limited resources.

When management attempts to fine-tune sales performance, it typically turns first and most often to compensation. An effective incentive pay program must reinforce overall company objectives and reflect the differences in sales roles and key accountabilities.

Effectiveness also depends on clearly communicating the new plan to the sales force. Well-designed incentives can go a long way toward fostering a climate of shared destiny if they’re built on a firm foundation of trust, fairness, open communication and a mutual understanding of business objectives and realities.

Besides pay, the other “traditional” component of total rewards is benefits.

These two components represent “transactional” rewards that can be easily duplicated by competitors. Benefits often are designed to protect sales reps and their families, and to build financial security for the future. To be used as an effective tool however, some benefits can be redesigned to both motivate and assist in retaining sales representatives.

In principle, sales personnel should receive the same benefit coverage as their peers in other company functions (that is, those employees of similar stature).

Thus, benefit coverage for reps at certain total cash compensation levels (salary plus incentives) should match those provided to other employees with similar levels of total compensation.

In reality, some variation is likely, particularly in establishing survivor and retirement coverage. The key issue is the earnings base for calculating coverage level. For example, the amount of life insurance available under the company’s group policy is usually expressed as a percentage of annual compensation. For salaried sales personnel and other employees, this calculation is straightforward. But it becomes more complex for sales people whose compensation consists of both salary and variable compensation that can change significantly from year to year. Given the possible changes in incentive earnings under sales incentive plans, consider calculating coverage on current salary plus a moving average of several recent years’ incentive payments, or linking coverage to target total compensation.

Work environment
Work environment is the rewards category that is the most difficult to pin down because it focuses on psychological rewards — the elements in a job that engage the heart rather than the mind. For some, this includes the type of culture in place — participative and team-oriented versus control-oriented and hierarchical. For others, it’s about the chance to sell a breakthrough product, or about the aspects that allow for a balance between job and home, such as telecommuting, strong support staff and flexible working hours.

These elements are often the most important criteria for people choosing among similarly paid positions. Since we all spend so much time at work, the things that make it a positive or negative experience count for a lot.

Such elements are tricky to manage in any workforce segment. With a sales force it is doubly so, given the amount of time and focus on customers external to the company environment. For example, some sales representatives dedicated to a major account will be more familiar with the customer’s environment than his or her own. Others who spend a significant amount of time in the field will be slower to recognize changes made in the home office’s environment.

Regardless, sales representatives will always be able to compare the work environment of their customers with their oven, making it nearly impossible to overemphasize the importance of getting the work environment part of the rewards package right. Why? Because it may be the only reward category that can truly differentiate — often at minimal additional cost — and help achieve employer-of-choice objectives.

Indeed, companies that are consistently cited as models of employee excellence almost always have distinctive culture and work environments. Employees view them as having a unique identity — a brand — as do their customers. This can truly engender passion in employees since it is much easier for a salesperson to sell a product or company in which he believes.

Human resource managers can influence the business results of their company directly. Championing a critical review of sales force total rewards can lead to increased selling effectiveness and customer loyalty. This will hit the “bottom line” quickly, and in very measurable ways.

Mike Hammond is a senior practitioner in Towers Perrin’s Toronto office. He is an expert in sales strategy and selling effectiveness, and has consulted in consumer packaged goods, pharmaceutical, telecommunications, media, finance and high-tech sectors. He can be reached at (416) 960-7512 or [email protected]

Key contributors to this article include Tim Weiler and Christopher Tuffi from Towers Perrin USA.

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