All tagged Compensation Plans
Many trucking companies use incentive plans for their sales reps and recruiters and the trend is toward increased use of pay for performance programs for drivers, driver managers and other roles throughout the company. This article will provide the four rules for ensuring your plans provide the right balance between motivation and business results.
Many companies struggle with changing compensation plans. Some never change, while others change far too often. So how do you know when it’s the right time to make a change?
There are many different ways to compensate and reward employees: commissions, goal-based incentives, bounties, MBOs, time-off, pizza parties, etc. In some organizations a pure commission model works the best, whereas in others, a goal-based incentive model works best. What makes the difference? How can one be “right” for one organization and another right for a different organization?
The most crucial task for successfully driving growth in any organization is to provide crystal clear role clarity to the staff. This goes far beyond what is typically found in an HR “Job Description” and must really address the nature of the role. Time must be spent interviewing the sales force, perhaps even riding along with them on sales calls or otherwise spending “a day in the life.” In our experience the reps’ perception of their company’s sales strategy and business objectives are never 100% aligned with that of the management team.
One of the most vexing challenges when transitioning from one compensation plan to another is how to handle payouts for deals that occurred under the old plan. So, if your new plan starts on July 1, then all deals that close on June 30 should be paid according to the rules of the old plan. Things can get tricky when the crediting point or payout timing changes from the old to the new plan.
I was recently asked by a medium-sized freight broker to provide a list of the things we look for when assessing the health of an incentive plan. That prompted the following list of key items that we consider when determining if a compensation plan may need to be revised. While this list has items specific to freight brokers, you can easily substitute your roles and economics in place of the broker specifics mentioned.
Success is not about the revenue generated, as we've seen small companies be far more successful on many dimensions than some of the largest publically traded companies. Nor is success (at least the way I measure it) based on the size of the bank account of the CEO. To me, success is about how employees feel about an organization. Do they feel a sense of "ownership" – is it something they have been entrusted with to care for, and do they take their duties seriously, acting with passion and dedication? This creates sense of loyalty and ownership of any company initiative creates success.
Performance Measure Selection is Critical to Incentive Compensation Success. Defining these details for all of the roles in your organization can be tedious to say the least, but it is ESSENTIAL for a good plan design. It’s also essential that you have many heads working on this together. One person cannot think of all angles. For example, something is missing from the measures part of the table below that looks like it might be pretty important for this role. Can you see it? I’ve highlighted the miss on the next table and added in an incentive to cover it. Notice I don’t say what kind of incentive (commission, goal, bounty, etc), just “incentive” as it will be in the next phase that we develop the mechanics of the plan (we call this part Detailed Design, and it’s a lot of fun).