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How do you deal with "entitlement" in sales compensation plans?
It's interesting, in times when people are blowing away their numbers and commission plans, everyone would argue for Pay For Performance (with no caps). In tough times, or when people aren't making their numbers, their attitudes shift to Pay For Efforts and they tend to develop an "entitlement" mentality. How do you deal with these isses? What are some best practices?
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2 Answers
In the school of hard knocks, my grandfather once told me, "I don't pay for time, I pay for performance." He was referring to my brokerage commission for a commercial property he owned that I was unable to sell before my listing agreement expired. It was harsh, because in many businesses you at least receive a draw, and I assumed that family would treat me with at least the same industry standard. What I realized is that regardless of the times or situations with your employer, performance always rules in business. I do believe in a base pay, but in the long run you must positively and negatively reinforce performance. I learned a hard lesson, but in the long run I will know from the get go what I am up against... myself.
David, I'm going to address this issue from the perspective of events that are out of the scope of control of the sales rep, such as the 'great recession' of 2008. If the intent is to satiate sales reps who are not performing, then I find JMB's comments right in line with the school of hard knocks that I am all too familiar with myself. Than said ...
There are a number of variables in sales compensation plans that can be used to adjust to changing market conditions. Uncapped commission plans are one method, but many plans are more along the lines of sales incentives where the variable portion of the plan is based on achievement against a target (Quota) with tiered payouts that increase as achievement improves.
When the economy collapsed there for a bit around 2008, we saw many of our customers modify quota's downward to reflect the changing environment. Staff retention became a huge issue and keeping a team somewhat intact through the storm was a priority. One can also shift the ratios of base pay to variable pay as a level as well.
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