Sales Compensation Plan – Real-Life Example, Part 2

Posted by David Wallace on January 28, 2010

In our last post, we read about the negotiations a new business sales rep was having with her employer.  Here is the conclusion.

Reader [and Top Line Response]:

Firstly, I greatly appreciate your taking the time to get back to me, and share your insight.

I managed to address the following, so far, final agreement signed and terms are still pending.

– Percentage of commission on repeat business for up to 1 year. Previous contract did not have this (my mistake), and first round of negotiation they recommended 6 months only. i pushed for 2 years, but alas, no. [Top Line:] Good catch on the repeat business.  One year is not bad, but it will focus you on new accounts.  After that first year, your relationships should be fully transferred to account managers or partners in the firm.  It will not benefit you to continue working those relationships.  Also, at what point does an account become inactive and, therefore, eligible for you to prospect them again?

– Employer to honor the full 1.5% commission for 2009, for which I brought new clients and initial projects with 1.7 million revenue 2009. I brought over $3 million in opportunities, but we did not win them all. Ultimately I will be compensated 4% on that revenue, or 115K 2009 year. As I shared, they are trying to say now that I “did not do my job to warrant the full 1.5%” for which I highlighted that no one shared that with me at any point in 2009. They also tried to limit commission to 0.5% for a very desirable client I brought in, claiming that this client knew of our agency. It’s true one individual there had met with our Partner, over 2 years ago, but no opportunity came of it. when I started, I began building the relationship, i log all my correspondences, who I spook with and when, and presented that during a recent negotiation, for which I feel they will agree that I am solely responsible for bringing that opportunity, so that’s good. [Top Line:] Partners should live up to their agreements.  Any changes should be in writing and on a going forward basis, not retroactive.  Also, are they paying you on effort or results? If you are paid on results (i.e., how much revenue you bring in), then it shouldn’t matter how much effort it takes.  If they want to pay on effort, then the commissionable events should be clearly defined.

– Commissions paid quarterly agreed, previous contract was annually. [Top Line:] This is much better.  It keeps them from having too much buyer’s remorse when it comes time to pay you.  Also, with a small company, you don’t want to carry the risk that they won’t have the cash to pay you at the end of the year.

– When I was first hired, I requests 90K base and 3% commission, this was agreed and then partner came back with 1.5%, sharing that there would be no way that I could single handedly close new business. It’s true, there is always a team involved in the process, so there really isn’t the opportunity for me to handle the close, even if I wanted to. Partners do all negotiating. Unfortunately, in my agreement, it states that I get commission on clients i close, clearly this should have never been written there, and now it has come back to justify there reluctance in paying me. i highlighted the fact that we went from 3% to 1.5% specifically because I would not be expected to close, and they still came back with, going forward 1% commission. Adding that they seem to feel that I don’t do anything of greater value than their PR person?? I beg to differ. I see more value in being able to hand select clients according to our companies growth, build a relationship out of nothing, thus bringing in the best client they’ve had – at the start of a 5 year engagement for revamping their entire online business. Our company stands to make +5 million in revenue in 2010 alone., as we already have 3 SOW prepared for subsequent work. When I brought this client in 2009, the original SOW was $2.5 million, and our partner offered a discount to $1.4 million, so that directly affects my commission. Furthermore, our new clients comment time and time again, that while they get numerous “cold calls” daily, mine have been truly effective, mutually beneficial, and the only one they consider receiving. [Top Line:] You may want to stay engaged in the sales and negotiation process (even if only peripherally) to ensure the partners are not undoing the work you’ve already done.  It should also demonstrate to the partners that you do more than simply pick low-hanging fruit.

– There’s been talk by our operations manager, about the possibility of my employer paying me for all new introductions & meeting, thus, even if no opportunity comes from it, I get paid regardless. And this would replace all commissions. I’m a little suspect of this, but willing to see what they come back with. 2009, I arranged 21 new client meetings with stellar clients, from those we pitched 6 opportunities and won 2. From those 2, we have long term relationship potential. [Top Line:] This is not a bad idea.  However, they will need to clearly define the commissionable events and agree upon how much commission the event is worth.  I would consider this as an addition to your revenue commission or a partial replacement.  If you are paid only for the meetings, you will have no incentive to qualify the customers or seek larger deals.

I wish there were some way of knowing definitively, the value of what I do is for the company. Given the recent events, I feel slighted and not sure I can trust my employer, that he’s shown himself to “backpedal” and he has for the first time belittled me during our negotiation meetings, when all last year, he would say enthusiastically, “we’ll take care of you” and “your doing a great job!” I’ve thought about approaching the other partner, who runs the creative team, so not my direct supervisor and most likely completely unaware of my agreement. He seems to really value what I do. Somehow, I think this individual would be more generous and immediately accommodate to what I feel is fair. Again, I’m not asking for something that is excessive. [Top Line:] Unfortunately, I think your boss views negotiations as win-lose situations – if one party “wins” the other must “lose.”  This is bringing out his crudest personality traits because he sees himself as in a fight and does not want to lose.  You will need to move him to a win-win perspective.  This can be tough to do with some people.

– I don’t know what range the margins are in, and will try to find out. [Top Line:] It might be difficult.  Partners in small, private companies sometimes don’t like to share this information.  It’s a little like asking your boss, “So, how much do you make?”  You’ll need to finesse the issue and come at it from a pure business perspective.

– In terms of my role, currently, I a) open doors for our company to have introductory meetings with potential new clients b) build relationships with new clients to the point that they hand me an RFP, at which point, our partner and new business director come on board for an intro meeting, a proposal then get crafted by our new business associate, sometimes we have our business strategist involved, a team of leads then meet to pitch the project to the client, our partner negotiates and closes. [Top Line:] Keep stressing that sales are a team effort and you are a key member of the team.  Without you bringing in new prospects and customers, the rest of the team would have a lot less to do.  You also free up the partners to focus on what they do best.  I’d bet their strengths are not cold calling and prospecting.

– I highlighted that at 90K base plus 1% commission, as I bring more revenue yearly, my overall compensation percentage decreases… e.g. 3 mill/year I would obtain 4% overall or 120K/year, if I bring 5 mill/year I would obtain 2.8% overall or 140K/year. This structure doesn’t incentivize. Sadly, my employer won’t consider incentives. [Top Line:] You might consider proposing a quota system.  Set your quota at a level that the partners and you agree is reasonable, but a level that the company would not achieve without your involvement.  It may be set so that it’s a bit of a stretch for you.  Then set the commission up to quota to be 1.0% of revenue. Commission rates for achievement above quota should then be set at 50% (or 100%) above the base commission rate.  Then it becomes a win-win for everyone.  Quotas can be paid annually or quarterly.  Quarterly quotas keep you focused every quarter and allow you to have kickers throughout the year.  However, it limits your ability to have one or two deals carry you for the entire year.

Anyway, thank you again. I have had a hard time finding clear info around this topic, and really do appreciate your recommendations.

If you have any thoughts on this situation, send me a note, or add a comment below.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2010, David P. Wallace

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