Eliminating commissions from the highly competitive world of sales and placing the sales force on a straight salary is shows a lack of respect, according to most people who work in the field. However, top executives at many companies are reconsidering the old way of paying their sales staff. Much has changed in the world since sales representatives were crowned king of many corporations.
Businesses relied on their expertise and ability to close deals to keep revenues positive. Not only were they essential to selling products and services, but their role was also key to cultivating client relationships. Today, information on the Internet removes the necessity to have sales representatives explain company policies and pricing. Instead of enhancing customer relationships, the commission-driven sales force could block proper dialogue with customers.
Deciding to upend a sacrosanct principle of sales is not always an easy thing to do. Change is difficult for some people who feel comfortable with doing things the way things have always been done. However, refusing to do things differently when there are signs pointing towards a better path can be detrimental your company and its mission.
Many companies are reconsidering commissions and the role of the sales force. In most cases, a customer has done the leg work of comparing products and solutions to what they need to buy. Since the Internet is not going away, a commission-free sales force is most likely the next wave of the future.
When Incentives Overrule Customer Relationships
Switching to a salary-based compensation plan for sales representatives is not a new phenomenon. Companies as far back as the 1990s decided to change from commission plans when incentives overruled the best interest of customers. Even those that were generating millions of dollars in annual revenues stopped paying commissions and ended incentive targets.
Chronically high turnover rates in sales departments put the spotlight on the conflict between doing what was right and a desire for higher earnings. The ultimate goal for any business is to build lasting relationships with customers. The smart sales person understands this knowing that when the customer is first, sales will follow.
Transitioning from Commission to Salary Structure
Supporters of eliminating commissions believe that this type of payment structure can foster negative behaviors. Some on your sales team might focus more on their individual profits than your company’s. Their approach to customer relationships is to emphasize short-term outcomes.
Eventually, this can lead to an unproductive atmosphere of competition among a sales force that is supposed to be on the same team. A sales force with this mindset will chase offers that are more lucrative and leave your company without anyone to sell your products or services. Not only are you without sales representatives, but now you must endure costly turnover expenses to replace the representatives.
At the same time, you might not be anxious to totally abolish a commission structure. Furthermore, is it possible to attract top sales representatives without a commission structure? It might be difficult initially, but it is not impossible. Perhaps you need to transition the team to a salary structure, which incentivizes your team to stay.
To make a smooth transition, begin creating a culture of collaboration by removing the individual incentive for closing sales. Shift the focus towards customer need rather than the percentage of selling 10 widgets in one week. Make sure you include the entire sales team in the discussion and tie the need for change to the company mission and strategic objectives. Talk to your sales team in a group setting and one-on-one. Explain the rationale for moving to a salary structure in win-win terms.
As you develop a salary structure, take into consideration top performers and offer compensation close to their commission earnings. While all representatives might receive a pay cut, they will gain a steady paycheck. This will give each sales representative a sense of security when the business cycle shifts to slow periods.
Even if you communicate every step and the business reasoning behind the transition, do not be surprised if some of your sales team quit. Not everyone will like the new approach. However, you can turn this into a positive when you recruit new sales representatives. You can screen candidates to make sure that their alignment with the company’s mission goes beyond how much they can earn.
Keep in mind, transitioning to a salary structure does not change the revenue generation requirement. The only change is how your sales team is compensated for closing deals.
Shape the Compensation Plan to Fit Your Mission
Once you make the decision to end commission only compensation for your sales force, some of your top sales people may choose to leave. However, do not let the threat of losing part of your sales force keep you from hiring newcomers. It is possible with a straight salary that you can still lure the top talent in your industry. Attach the compensation plan to your company’s mission and good sales people will not notice the loss in commission.
There are many ways that you can enhance compensation for the sales team. In addition to salaries, you could consider offering a bonus plan. At the end of the year, divide a portion of company profits among employees. Pay larger shares to individuals on the sales team that gross the most sales during the year.
Not everyone will be against shifting from commission to salary. Some sales people will support the decision, particularly if they are in agreement with the company’s mission and goals. When they understand that their role is vital to the company, many will gladly accept the change.
Consistency is Key
Changing an existing compensation program will inevitably cause consternation among your sales staff. Anytime a new procedure or plan is implemented in the workplace, your sales force will have some concern. Work with each individual on the sales team to show how the new plan not only affects their earnings, but also how the company will reach its strategic goals and objectives. When the numbers show a gross-margin payout, most sales people will be happy with a new compensation program.
Regardless to the type of compensation program you decide to use, make sure that it is uniformly instituted. Give the change time to work rather than reacting to a 20 percent turnover of your current sales force. Even those who decide to stay may resist the change in how they are paid initially. However, what is important is that you remain consistent with the change is pay structure. Jumping from one pay structure to the next does not give your employees time to adjust to the new program.
In fact, every strategic plan that you make should be driven by the company’s mission and not the other way around. Your sales team will be uncomfortable until they adapt to the changes and learn how to make certain methods work under a new system. The fear of losing out will remain until they are reassured and see that nothing is lost.
If you have not already done so, detail company priorities and stay focused on the ultimate goal. Basing compensation solely on what an individual brings in should not be the primary goal of deciding to change from commissions to salaries. Instead, you want a team that can build lasting customer relationships. The reward is repeat customers who will boost the bottom line.
Attitude is everything when you want to create a compensation plan that works alongside your company’s mission. There is always a possibility that someone on your sales team will look for a better offer. You cannot control their decisions, but you might influence their decision with a solid compensation program and strong company mission. Hire the right people to replace the ones who reject your new salaried plan and watch your company and sales force thrive.
Source: New feed