Will Your Best People Flee Once the Recovery Takes Hold?
September 14, 2009
We just published the results from kasina's 2009 Sales Compensation study. Compiling the data was a lengthy, arduous and enlightening process. As you would expect, data reveal that quantum changes have taken hold since our last Sales Comp study in 2007. More interesting to me than the data itself, though, is that only a minority of firms are making special and determined efforts to take care of their top salespeople.
Broadly, companies reacted to the recent market crisis on a continuum that ranges from "duck and cover" (change nothing, wait for the storm to pass) to "opportunistic rationalization" (use the crisis as an opportunity to make needed and innovative change).
Most striking, however, is the difference in how companies are treating their employees, particularly their best performers, during the crisis. Some companies continue to reward their best employees handsomely while cutting back the pay or positions of lower performers. Other companies seem intent on sharing the corporate pain equally across all employees, cutting pay, perks and positions across the board.
This latter option is dangerous. While it sounds good, fair and right to share the pain across the board, the reality is that doing so puts the long-term health of the firm at risk. We all know that top performers add far more value than lower performers (to the tune of two times to four times the level of productivity).
The 80/20 rule is real. Top performers are also most likely to continue to work their tails off despite the challenging environment, and may be discouraged if this extra effort yields reduced pay. They are the ones who will have the most opportunities to leap to a competitor if/when the market turns around. Our interviews reinforced that this industry is a tightly linked network. Your competitors all know who your best people are, and they will snatch them from you if you do not keep them engaged and happy.
The average spread between the highest and lowest-paid external wholesalers at the average industry firm, based on 2008 actual data, is $225,000 in total compensation. Firms that have very highly paid wholesalers tend to maintain even broader ranges. In most cases, these are firms whose sales performance exceeds expectations. The highest spreads can exceed $500,000 (the largest we have seen is $720,000).
While this may sound excessive, large compensation packages are important to consider if top performers are to be given the best incentives and best opportunities to excel. But how do you justify such large compensation packages when resources are at a premium? We found that a few companies are getting creative by:
* Separating Performance by using tiers in the base salary. Approximately two-thirds of the industry does not use a uniform base salary. One $50 billion fund firm with 80 wholesalers maintains three tiers of base pay
* $50,000 for brand-new wholesalers
* $75,000 for the vast majority
* $100,000 for four to six highly experienced, top-performing wholesalers as a means of ensuring retention
* Using Discretionary Bonus Pools to disproportionately reward higher performers. Some firms are using internal rankings based on a performance curve, and insuring that the top performers receive a disproportionate share of discretionary bonus pools. These firms rank their wholesalers' relative performance quarterly for:
* Diversification of sales across products
* Progress against sales goal
* Territory redemption rate
* Softer skills like teamwork, presentations, mentoring
Other firms are maintaining reasonable pay for their top performers by eliminating other positions or expanding responsibilities of some employees. Firms must remember to reward activities that are important, controllable and that yield long-term benefits to the firm, even if those activities don't yield short-term, measurable sales results.
Lastly, we recommend firms to try to tie sales to corporate profitability by helping sales professionals rationalize travel and sales budgets, cross-sell products and advance long-term value creation and profitability for their firm.
It would be easy to ignore the threat of turnover these days. There are enough other things to worry about: cash flows, regulation, etc. However, as the financial market rebounds, so, too, will the job market. The first employees to leave will be high performers who feel unloved.
Start thinking about this now, because replacing high performers is difficult. Taking care of your most valued salespeople is not only important to retain these individuals, but also important to incentivize the rest of the sales team. Knowing that if they have to truly compete but will get paid for these efforts will elevate the overall performance of your sales team.
While it is easy and tempting to "share the pain" across all employees, it will prove to be better business to take care of your best and ensure that they are still with you, happy and productive when the financial (and job) markets rebound.
(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.