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Thursday, August 09, 2012

Rules for paying salespeople

Michael Stone and I disagree on some things when it comes to compensating salespeople, and agree on others.

Stone believes all sales reps (for residential renovation/construction work) should be on pure commission.  He advocates switching anyone on salary to commission, perhaps allowing for a three month transition.  He says salary invites excuses for non-performance or at best, minimal performance.

In my publishing business, I've used salary and commission models and have concluded the ideal sales rep should be paid a salary, but evaluated and hired on the basis that the rep could function well in a pure commission setting.

The challenge with pure commission in the recruiting process, in my opinion, is that you really run into "barbell" problems in the competency bell-curve.  Really good and talented sales reps will, of course, be happy to work on commission.  Really bad ones will take a "commission-only" job because they can't get anything else.  Recruiting then becomes a real challenge.  You can advertise and advertise, and only a few respond, and of that few, only a smaller few are worthy of even considering.

I suppose these recruiting challenges remain in our salary-hybrid model (we expect our reps to get "above salary" once they 've built their client base and repeat business volume; this can take about six to eight months).  When we advertise (using the free Canadian government Job Bank employment service) we can receive hundreds of applications.  Fortunately, we have a simple system for weeding out the applications and narrowing the list.  In the end, the short list is small.

The salary model allows us to encourage our salespeople to think longer term and with a relationship/community service focus, beyond meeting immediate quotas.  It isn't perfect, but I think it provides more stability than a pure hunter-commission-only model.

So, there's the difference between my perspectives and Stone's.

Where do we agree?  Essentially, we both agree that salespeople need clear working guidelines and must follow some basic rules, essentially relating to ethics.  As well, Stone and I agree that once we set the commission and compensation package and territories/responsibilities, these must NEVER be changed without the salesperson's concurrence.  (No salesperson will agree to poorer compensation or smaller territories without some really good offsetting advantages.)

Sometimes the bean-counters get involved and think the sales reps are making too much, especially if they appear to be simply serving existing accounts and not attracting new business.  Short term efforts to bolster the bottom line almost inevitably result in a longer-range business disaster, as competent sales reps leave as soon as they can.

An important point to note is that while Stone advocates a commission-only hiring model and we will pay a base guarantee, we simply won't hire anyone who cannot prove their true sales competence and anyone who thinks they can coast without delivering meaningful results won't be around long.  You could argue our salary model is simply a variation of the "draw" -- designed to allow a starting salesperson the opportunity to get the bases established -- but I really think there is merit in providing some stability at the base; and then encouraging real performance beyond it.

See our advertising sales recruitment site,

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