Sales Compensation--Fair Play, Fair Pay
According to Plutarch, Julius Caesar, passing through a poor village in the Alps, remarked, "I would rather be the first man here than the second in Rome."
Now we all know that Julius was a very ambitious man. He possessed many of the qualities—like ambition—that printing company owners might like to see in sales personnel. However, many printing CEOs lament that even with increased sales volume, margins continue to shrink. So, a salesperson's drive to be the best cannot necessarily be met with the high salaries of the past.
Conversely, sales reps may regard their compensation plans as either fair (as in just) or just fair (as in fairly unjust). Others may feel so content with their salaries and their existing accounts that they have no desire to seek new business. In this instance, how do you compensate the salesperson who would rather be the second man in Rome?
Because each business is different, no formula exists for developing compensation plans. For this article, Printing Impressions interviewed consultants, printers and salespeople to determine what constitutes "fair" sales compensation.
According to Terri Nagi, of Terry A. Nagi Associates, in Washington, salespeople are usually paid on draw against commission, which averages 6.5 percent to 7.5 percent of total sales for a sheetfed salesperson. Additionally, "expenses can amount to another 1 percent of total sales billed, and fringe benefits total another 1 percent," Nagi says.
One might find a salary upwards of $100,000 as more than adequate, but not everyone would agree, especially when profits are down. Therefore, printers and their salespeople who are both screaming, "Show me the money!," may best address their concerns by first asking themselves some strategic questions.
For example, printers should ask themselves: How do we want the business to perform? How much do we want to earn? What market(s) should we maintain/enter? What services will we offer? Does seasonality affect business and how can we best offset its effects? How profitable are our accounts? Can we provide whatever it takes to motivate our sales force and, if so, do we want to provide it?
Without a plan based on these questions (and answers), it is almost impossible to fashion a sales compensation plan that benefits all.
"As a printing company owner or CEO, you should determine what you're trying to accomplish as a corporation and critically think about how your sales remuneration plan does or does not support what you are trying to accomplish," advises Sid Chadwick, president of Chadwick Consulting, in Lewisville, NC.
"We don't ask ourselves the right questions or look at the ways in which this industry shoots itself in the foot. Our thinking is upside-down," he maintains.
On the other side of the forum, sales gladiators might wrestle with these formidable questions: What are my best skills? What motivates me? What will I need/want 10 years from now? Do I like selling?
In addition, printers should consider the following personnel elements of the compensation issue:
* Personnel: Pillars of Your Temple
What is the mind-set of a successful salesperson? Let's pardon generalizations for a minute and divide salespeople into two groups: "hunters" and "farmers." Let's consider the hunter as someone who thrives on face-to-face cold calling. An aggressive new business seeker, he or she does whatever it takes to land a new account.
By contrast, the farmer may shun cold calling, but enjoys visiting existing clients. The farmer prefers to nurture already-established business.
Which type of salesperson best suits your firm? Where do you place him/her in your organization? How should you compensate him/her? The amount of remuneration depends on your strategic plan and the type of business you wish to develop. However, most printers place an emphasis on new business, thus encouraging hunters over farmers.
"It's hard to find a compensation plan that rewards sales reps for increased business with current customers," notes Chadwick. "Companies pay bonuses for new accounts and lower commissions for increased business."
None of the printers we interviewed would discuss his compensation plan in detail; however, Ron Bray, president and CEO of French Bray, in Glen Burnie, MD, rewards salespeople who not only bring in new accounts, but who also maintain and develop existing clients.
Harris DeWese, a principal of Radnor, PA-based Compass Capital Advisors, indicates that loyal accounts become more profitable as time goes by, but become less sales and more customer-service intensive. "A company with salespeople who compete for every job differs from a company whose sales force has little or no competition for a job. People who do more face-to-face selling should be paid at a higher level, and generally they are."
However, a CEO should determine the value of a particular type of account long before developing a sales team. Once armed with a well-mapped strategy, the printer can address other hiring issues.
"You need to hire the right people for your culture," notes Jeffrey Spear, president and CEO of The John C. Otto Co. in East Meadowland, MA (part of Houston-based Consolidated Graphics). "We interview six to nine times before letting someone join our family. It's like getting married—we make sure the individual really wants to be here."
One sales manager for a $36 million web and sheetfed label printer in the Midwest, notes that most salespeople seek a level of security, like a base salary or rewards for excellence (bonuses).
What about customized compensation plans? In the search for a kinder, gentler workforce, should we base compensation plans on individual need? After all, as Chadwick notes, a 55-year-old will have different income needs than a 30-year-old.
But most printers believe that individualized plans are fraught with danger. DeWese discourages custom-built compensation plans. "I'd rather be consistent," he states. "Joe Salesman won't keep his mouth shut, and pretty soon everyone will find out that he's getting 11⁄2 percent more than anyone else. "
Spear, whose sales force is fairly young (average age: 35 to 40), concurs: "In terms of other benefit needs, I can be flexible. For example, one may use a corporate-owned vehicle rather than using his own car. But there is a profile that fits the optimum salesperson for our business. I expect each salesperson to fit that criteria."
* Which Roads Lead to Zones?
Almost every printing company CEO encounters this: After x number of years, a salesperson feels comfortable enough to "slack off." He/she stops prospecting for new clients and, consequently, the amount of new business drops. The rep is burned out. Consultants refer to this malady as a "zone" or a "plateau."
It's a big problem in the industry, contends DeWese. "It happens particularly to people who get burned out after 40 or 50 years and say, 'I'm just not going to work harder. Been there. Done that.' "
Ideally, printers should prepare for this when first designing a compensation plan. Unfortunately, most printers have some kind of program that has been in place for years, and there is no industry census concerning the shelf life of an average print salesperson.
"We've had happy salespeople who reach a plateau," Bray confesses. "If they produce profitable work, you're not going to put them out to pasture. But you do want to encourage them to grow."
DeWese suggests that nothing will push a sales rep to do more once that individual has become comfortable. However, you can set performance standards, offer inducements and try to explain that a salesperson who is limited to a handful of accounts will see last year's earnings of $65,000 drop to $45,000 if an account is lost.
A typical salesperson may take a different slant toward prospecting. One sales rep points out that a large portfolio requires a great deal of follow-up and maintenance, thus prohibiting new account development.
"When a person reaches that point," he says, "you eventually have to add a junior salesperson who has the need and the time to go after new accounts. If you have to manage $10 million, you have so much to manage for what you've sold that you don't have the time to go after new business."
A sales manager for a sheetfed printer in the Boston area provides a more detailed view of how to handle a salesperson who has "zoned out." He feels that if the average salesperson is expected to generate $1 million in sales, then $750,000 in actual sales is unacceptable.
What about the rep who sells the required $1 million, but fails to increase that amount for several years? "If a salesperson has been selling $1 million for three years or more, then he and I would have to plan on how to increase sales by 10 percent," he replies.
On an individual basis, printers and their sales staff can negotiate other options. For instance, the printer may create a special customer service/sales position for a key sales "farmer."
Another sales manager for a sheetfed operation recounts the story of a key salesperson on his staff. "She had reached a plateau because she didn't need the money, didn't like cold calling and wasn't a 'closer.' But she did have a knack for making people feel comfortable."
He is contemplating having her accompany other sales reps on their calls, in addition to maintaining her profitable accounts, since she has become a key customer satisfaction representative.
* Caesar's Writ: The Compensation Document
According to consultants, most printing companies avoid written compensation plans. Without a written agreement, however, management and its salespeople can both incur liability.
"Most companies with $10 million in sales or less do not use a written plan, but I recommend one," attests DeWese. "It should be short enough to write on the back of an envelope and simple enough that the salesperson could go home to his/her spouse and explain it for him/her to understand."
Who should write this document? DeWese believes that the owner/CEO, the sales manager and the salesperson should write the document together.
Not all printers agree. At one such printing company, the vice president of sales and the CFO write the document, with no input from the salesperson: "I like [having a document] because it helps to direct the salesperson toward what he should be doing."
Finally, Chadwick recommends an annual review of the compensation plan and the agreement.
"By reviewing the plan each year, management and the participants will become more sensitive to how the plan does or does not support the company's performance over the course of that year," maintains Chadwick.
—Barbara A. Bucci
Aside from the usual expectations anyone has of his/her employees (like honesty, loyalty and hard work), what can you reasonably expect from the salesperson you have just hired?
Harris DeWese believes that some of the most important attributes to demand from your sales staff are diligence, personal development, fiduciary responsibility, technical expertise, closing skills (as in remembering to ask for the order), team participation and new account development.
In addition, printers should consider sales generated per type of service.
"Generally, a salesperson who sells more than $1 million worth of sheetfed business, for a $10 million sheetfed company located anywhere in the United States, is performing well. This amount would generate $650,000 to $750,000 in value added," notes DeWese.
By contrast, a good measure of satisfactory performance by a web printing salesperson is about $2 million in sales, because the run lengths are longer and the projects are bigger. Also, salespeople who sell publication printing should peddle about $6 million to $8 million in services.