Compensation Confusion, what in the world is that all about? We all know that everybody simply works for the challenge and enjoyment of their job, right? I don’t think so. Obviously the challenge of your job and the resulting satisfaction of a job well done is important, but, it’s really doubtful that many people would put in maximum effort if they were not assured payment at the conclusion of their appointed task.
The logic of this concept seems self evident. If that is the case why in the world is properly administered compensation such a seemingly difficult task?
There are many forms of compensation; Hourly, weekly, annual, project specific, performance based, commission on sales or most commonly, a combination of one or more of these approaches.
Hourly, weekly and annual compensation programs are really quite simple to administer, its usually just a case of keeping adequate records of time worked and applying the agreed upon compensation amount. Project specific compensation is similarly easy to administer. Problems most commonly appear in the world of commission sales and resulting compensation allocation. Why is that? It’s really not that complicated.
Let’s review the intent of a commission program, and where most problems begin. First, it is important to understand that this is not an industry specific issue. It is further helpful to realize that this problem occurs similarly with Independent Manufacturers Representatives and company paid sales forces. Speak with any sales group, in any industry, independent or company employed, and it will quickly become apparent that the issues are the same.
The problems almost always stem from a vague, poorly administered, haphazardly enforced program. To avoid the common pitfalls a commission program, it would be helpful to approach your program as follows;
- Determine your company goals. Sounds simple, but in virtually all commission disputes, the true goals of the company program are at best unclear and in many cases, completely contrary to the true goals of the organization. Take this seriously; it is the foundation of your success.
- Develop a clear, concise and complete commission program, in writing, and be certain that all effected individuals are fully conversant in the facts and intent of the program. Have all concerned individuals or companies sign the plan. Its incredible how many individuals within an organization have no idea how their company products are sold! If the plan is crystal clear, most disputes will be avoided.
- Adopt a policy of uniform administration and enforcement of the agreed upon policy. No member of the team should have to be concerned that the program, as written, as explained and as agreed upon by all, will not be enforced uniformly. Never have the program subject to the whim of any individual, never!
- Understanding that all orders of any kind must be entered and serviced through the principal company, make it the clear, uniform and non negotiable responsibility of those accepting and processing any order to secure complete information necessary to assure proper compensation for those involved in developing the business. If individuals responsible for creating business are not confident that they will be compensated, sales will definitely be compromised! It is unacceptable to inform a sales team that the company is too busy to assure proper compensation allocation
- A common and successful system to guarantee this follow-up is to have a meaningful portion of the order processing teams compensation based upon full and complete order entry information. Lack of information required to assure proper compensation allocation should result in diminished compensation for those responsible.
- Registering projects is not reasonable or effective. Any successful sales person knows that if they are really performing their job, it is impossible for them to be aware of all projects. All successful sales people also know that a large percentage of projects or accounts they work on result in no sales or compensation!
- Put the burden where it belongs, at order entry!
- At time of order entry, all compensation decisions should be determined, put in writing, and distributed to effected individuals immediately. Every order of any size should require a written order confirmation. In no instance should these important decisions remain unresolved until a later date. This approach allows for discussion, debate, and resolution at order entry. Once a decision has been reached, all parties can then move on to the next order.
It’s incredible how much time, energy, and goodwill is wasted if this process is ignored.
Virtually all organizations painstakingly work to develop excellent products, good literature, and comprehensive marketing programs. Usually much thought is given to training and compensation. Time and resources are invested in developing an “esprit de corps”! Poor administration of the company compensation program can and will result in unhappy employees, confusion in the organization, wasted time and effort and lost opportunities.
Want your company to grow? Why not eliminate Compensation Confusion!
William L. Shannon CSI, CISCA
President of Shannon Corporation
Recipient of the 2004 De Gelleke Award