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The Salary Triangle

There are three sides to every sales compensation model. Does yours factor in all three?

By Lee B. Salz

Few decisions in business are more important than how to compensate a sales team. Unfortunately, many look at this issue from a single vantage point: How much do we want our salespeople to earn if they hit quota? That's a relevant question, but it should not be the only determinant of sales compensation.

There are three entities to consider when formulating the sales compensation plan: the salespeople, the clients and the company (employer).

An equilateral triangle serves as the perfect model when designing sales compensation, as it ensures that none of these three entities is over- or under-recognized by the plan. If any of the sides of the triangle are out of proportion from the others, the result is the law of unintended consequences.

For example, a large health club chain offered membership discounts to employees at certain partner companies. The program was structured so that the health club salesperson would generate a lead for the corporate salesperson. The corporate salesperson would call the company and offer the employees a 20-percent discount on memberships if they would post a flyer for 30 days to communicate the offer to the employees.

The company paid full commissions to both the health club salesperson and the corporate salesperson on a 20-percent discounted membership. Needless to say, the salespeople were happy and invested countless hours pushing this program instead of the other programs offered by the company.

The other two entities, however, were less satisfied with the program. The company soon realized it had a near non-existent margin on every sale. Health club officials also discovered that their corporate sales team dedicated most of their selling time to this program instead of other programs that were of higher margin to the company but paid lower commission rates.

In another example, a firm offering outsourced services to human resources departments of large companies structured its compensation plan to pay commissions to its sellers at the highest percentage for the first 18 months following the commencement of the contract. After that period, the commission rate dropped to a fraction of a percentage. On the surface, the plan does not look perilous, but there were underlying components that caused issues.

The 18-month clock never restarted with a company. If a salesperson added other locations or regions, she only received the commission rate commensurate with the moment in time of the client lifecycle. If the salesperson added a new client location in month 19, the commission wasn't enough to buy a cup of coffee at Starbucks. If the client purchased additional services, the same compensation issue occurred.

The plan unintentionally encouraged a salesperson to sell as much as possible in the first contract and to not bother upselling or cross-selling, as the compensation level did not justify the work.

The HRO provider wasn't happy either. It realized that salespeople were not focused on conquering accounts. Many would sell once and move on to another opportunity. The salespeople were not focused on adding locations or on selling new products/services to the account. They also found they would lose many of their clients in year two and three as the attentiveness from their sales rep dropped.

Unlike in the health club example, where the salespeople were happy with the plan but the clients and company were not, no one was happy with this plan. After two painful years, the plan was scrapped in favor of one that met the criteria of the equilateral triangle model.

As you develop your compensation plan, ask yourself the following questions:

• What message does the plan convey to the salesperson about where to focus selling time?

• How does the plan impact the client experience?

• If the salesperson follows the plan exactly, how is the company impacted?

Remember, the compensation plan is the marching orders for the force. The equilateral triangle model helps ensure that every action taken by your sales team is intended.
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Lee B. Salz is the CEO of Business Expert Webinars and President of Sales Architects, as well as the author of Soar Despite Your Dodo Sales Manager (W Business Books, 2007). He is a dynamic keynote speaker and a results-driven business consultant. Salz can be reached via e-mail at lsalz@SalesArchitecture.com or by phone at 763-416-4321..
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