Why Most Sales Compensation Plans Fail | Tips for Sales Managers

Plug: Paul Leon here. thank you so much for being consumer of the show

Paul Leon: Welcome back to the managers mic I have with us a returning guests Trompolt. Scott, even though you're returning guests in case someone is new to this show and hasn't had an opportunity like I've had to meet you, who is Scott Trompolt to them,

Scott: Hmm. Well, first of all, Paul, I have to thank you for having me back on. Really appreciate the opportunity to talk to you and your audience and topics we've talked about in the past and what we're going to talk about today. But to your question, I'm a independent, compensation planning and design consultant. And what that really boils down to is that I help companies. ⁓

Plug: If you're a business owner who wants a free sales audit of your current sales process to evaluate possible gaps and you feel like can help you, please reach out to us directly at themanagersmic.com, and we'll set up a free. ⁓

Scott: figure out the best way to make a financial investment, not a financial advisor, but in essence, how to pay employees appropriately.

Plug: 30 minute consultation, no commitment at all. Just to have a relationship further, we can speak in real time. Thank you so much for being a listener and watcher of the show. And now back to the episode.

Scott: for the contributions they make in the organization. And there are a lot of different ways to do that. People think about base pay, and that's certainly very important, but there are also variable pay aspects that incredibly important. For example, sales compensation. is an area that I don't think gets as much attention out there than say base pay. And I think a lot of the rigor and the principles behind how you do base pay can be translated very effectively the area of sales compensation. But for a lot of reasons, that's not really always done. And that's, think, one of the topics that we're going to delve into today. So yes, I've been doing this as an independent for about 14 years, working with all sorts of industries and companies. And before that, I was in the corporate world. So I've had the opportunity to develop sales compensation plan designs, both within a corporate setting for many years and also on my own. And I've made some observations along the way.

Paul Leon: Hmm. I also would like to put a plug in before we get into the heart further about the book you wrote, the defragmented consultant I've been going through. And as I shared before we hit record a lot of the content from there has been catching my attention, part of your journey into where you've been. Would you like to speak to a little bit about if somebody's new to maybe the book you've just published on the defragmented consultant, what they would gain out of purchasing that book? Cause I know I've gotten some value out of it. I want to speak to that and we'll go a little deeper into this content we have.

Scott: Sure. Well, thank you, Paul. It's been out since December. It's on Amazon. and it's in all the different formats. I added hardcover not too long ago, because some people, I thought most people would like the e-copy or the paperback, but there are some hard copies that ⁓ selling and of interest, I think the important to understand about the book is it is not a compensation analysis type of book, because I mentioned I'm a compensation planning and design consultant. So it's not a book about that. I'm actually writing a book that in a particular area as a follow-up right now. But the Defragmented Consultant is really a book to help encourage folks who to into independent consulting. I'm 14 years and counting, but. I started to think that a lot of the books out there on this subject are kind of technically oriented. And I really wanted to get the message across that everything you've learned in the past, you need to bring forward, but you need to... Defragment you need to make it run more efficiently because ultimately You're going to most likely as an independent consultant be a force of one and you're to have multiple clients So how do you take your past and redefine it to make it more efficient? So that you can meet these multiple client needs and have multiple revenue streams So a lot about of the book is about that

Paul Leon: Hmm.

Scott: and making that kind of transition. And so you really become this little individual corporation. So that's the theme of the book. to me, the greatest insecurity of all being tied to one firm, and I was for a number of years, and knowing that ⁓ layoffs come, anything can happen. Everybody is disposable in one way or the other.

Paul Leon: Right.

Scott: no matter what you think of your relative contribution. It's just a reality. this book is giving a little nudge to those folks that have the skills that are valuable and to redeploy them in a different way and to actually have more security in their life in the long run

Paul Leon: And I'll be putting a link to those who may want to check out the defragmented consultant into the show notes. So for those who want to someone's expertise and doing this 14 years and many years, making those tough transitions and make your career more bulletproof, please check out that link and click that. Scott, I'm going to read to you a post on LinkedIn that caught your attention.

Scott: Mm-hmm.

Paul Leon: this is going to be the anchor for our conversation today for those who don't know. For those who don't follow me on LinkedIn or Scott, I recommend you do, but here was the post. So I'll read it from beginning. What kills rapport with many sales teams? Not being clear on the commission structure since the math is the path. Not having a clear value proposition that solves an acute pain. Not having a sales playbook that is proven and refined in results. Not having enough practice not having fun. I put in parentheses the most important one. There are times when I had to be there for a brother or sister in arms when they faced an unexpected challenge. And it broke my heart to watch someone put on a brave face to best serve a prospect and do what was required rather than what felt good. And to the sales managers who navigate these team challenges, my hat is off to you too. If you have not been told thank you for all that you do. Thank you for all that you do. Be well and have fun. Paul Scott, commented that we should do a podcast on this together you and I. What was it about this post? Top of mind that ⁓ resonated and I'm privileged to have you back on the show and keep building a relationship but I'm just curious from a having more rapport with you standpoint.

Scott: Yeah.

Paul Leon: What was it about that post, maybe one thing first that stood with you, if I may.

Scott: I remember one particular experience I was working with a company and that company was not maximizing the sales potential of its employees. we had new of human resources come in and we started talking about the sales commission structure. It was a very detailed system that they had. And I'm not saying that the sales incentive system was bad. It did what it was supposed to do in terms of calculating the sales payments. But everything about that system was complex. And worse than that, for the salesperson, they were spending so much time filing reports, meeting the requirements of the system.

Paul Leon: Hmm.

Scott: And actually part of their incentive was based making sure they filed this report and that report, which had nothing to do with actually maximizing the sales. And it was very complex and very confusing. And we fought quite a battle to simplify sales compensation design and to get the plan participants.

Paul Leon: Hmm.

Scott: much greater transparency because the system for all of its values, for all of its merits, it was very complicated way of calculating their sales incentive. And me, that's the first step of all. You've got to make it simple. You've got to make it transparent. And from there, at the beginning of this call, I talked about how I saw that a lot of the rigor that went into

Paul Leon: Hmm.

Scott: making things transparent from a base pay perspective or not translating into a sales incentive that you can actually use the market to clearly and simply show sales plan participants that if you do this, this is what you will get. And the reason why you will get this is because this level of performance we value greatly. So if you do that, you are going to get equivalent of 65th percentile above the market competitive rate. If you go even higher, you are going to get this of the market. So at any time, an individual, can look at their simple plan, say it's a revenue generation plan, they have a revenue target, and they say, OK, and it's a quarterly plan.

Paul Leon: Hmm.

Scott: In the quarter, they can see right there, if I hit 110 % of my target, I will get $6,000 payout. And that $6,000 payout is this percentage of the market. And you can briefly explain that the 50th percentile is that means you're getting paid competitively. But if you do this, you're going to get paid at this percentile and the next percentile. And for every level of performance, both below and above,

Paul Leon: Hmm. Right.

Scott: They can see from day one before they even close the sale how much they're gonna get. And that's incredibly important for the salesperson. They need transparency, they need simplicity, but they also need to know the transparency of why are they getting what they're getting. I've seen a lot of sales plans where literally at the end they don't know what they're gonna be getting.

Paul Leon: Mm.

Scott: they know what they've been doing in sales until they get that, oh, I got $4,000, okay. But you've missed the opportunity because that's the end of the sales cycle. You have to set the expectation of performance and what that individual would get paid before they do a single sale. And so the reason why that letter that you put on LinkedIn resonated with me because I could see my frustrations. Needless to say, we changed that whole system and eventually the results much better and a much reaction sales plan people. But literally they were having aspects of their plan that were designed to pay them out if they filed these reports ⁓ on time. that had nothing to do with revenue generation. It got way too complex.

Paul Leon: Hmm. if I understood you doing stuff outside of their role. Number one, busy work. Yeah.

Scott: Busy work, busy work to support the system instead of the system supporting them. one thing if you want to have a system to calculate your sales payouts, that's fine. But to put all these layers of complexity where the individual salesperson does not know at any moment what they need to do. that's good. If they know what they will they will do what they need to do. Because ⁓

Paul Leon: Hmm.

Scott: Salespeople, and I mean this as a compliment, very transaction oriented, very business oriented, they want to know if I do this, what do I get? And I think that gets lost in the shuffle. And I think the other thing that gets lost in the shuffle, the math of the path, and you can use the market to, know, a compensation consultant can come in and say,

Paul Leon: Yeah.

Scott: What's your ideal level of performance? All right, well, let's equate a certain level of market. If they hit 140 % and you say that that is based on their targets, that that would be difficult to achieve. Guess what? we are going to pay that individual, if they do that, at the 90th percentile of market, meaning only 10 % are getting paid more than that in the market. And that's something that the salesperson can grab onto, because they're getting a base pay to do already, to do the little day-to-day things. for the sales portion, it's very important that that is completely linked to a market-based value that is linked to a performance value that is achievable, but

Paul Leon: Hmm.

Scott: takes a lot of the guess work out.

Paul Leon: I read a study, 91 % is the typical average for salespeople. And that's across all types of companies. And there's a lot data that plays into that. Do you feel in your expertise that that...

Scott: Mm-hmm.

Paul Leon: factor of having a very unclear compensation plan that does not have those variables that you clearly discussed Scott is Why that number is as high as it is across the country

Scott: on my experience, yes, it's huge. I have so many plans where it just complex that it, it's not that these salespeople are dumb ⁓ or that they, ⁓ of these type issues, it's just, it's taking away from.

Paul Leon: Hmm.

Scott: what they really need to see transparently to focus on. And I think they can have, they can even have a great manager because there was a shout out, a salute to the managers, the sales managers out there in that article. And I believe that oftentimes, sometimes it's a very intimate relationship more so than other functional areas between the sales manager and a staff. really have. a connection, but the manager can only do so much. But if a manager can have input into what the target should be, you don't want me to be setting the targets for these individuals. You want the business to be doing that. But you do want me or someone like me to help align the values, amounts from a pay perspective and to make sure that the plan also, another point point that's that's to answer your question. It's a big part. The other big part is the fact that there are different types of sales roles. There is ⁓ manager who is managing a team and they're responsible for the overall results. But they are not doing individual sales yet. They're on an individual sales plan.

Paul Leon: Hmm.

Scott: And there might be a component to their plan where they're paid based on the group results. But the reality is, is they are leading other people who are doing the sales, unless they actually have their own individual book of business. But I see that the plan does not always reflect the type of role. So when you're looking at a sales plan, it's not just, it's about the role itself. What type of role is it? What is the typical fixed to variable pay mix?

Paul Leon: Hmm.

Scott: for each type of job, to put it simply, how much does each job you have in the sales department have on directly influencing revenue? Some jobs are supporting the sales team, sales engineers, supporting them, providing them with the training and the analytical aspects. But you're not necessarily, they're not necessarily closing the sales, but they're part of the sales team. Then again, as I said, there's the manager.

Paul Leon: Mm.

Scott: The other thing, the other reason why I think there can be high turnover is that, the sales representative does not see a career path for them. They know that they're an intermediate level sales. Well, how do I get to become a senior sales representative? And how do I become an expert sales representative? Well, that's going to influence if you're a higher level sales person. you should have a more difficult revenue target because again, you have more experience to penetrate larger types of So they don't see that pathway. And then the nice thing, if you have a career pathway, if you've got some expert salespeople and they want to become managers, by the time they're an expert as an individual contributor, that is going to be your bench strength. to move them into a management role if that's what they want to do because then they can apply all of their sales knowledge to helping others I think sometimes people want to stay an contributor and that's fine. But I think in the sales area, it's a great way to develop bench strength by growing them.

Paul Leon: Right.

Scott: into different roles. It's not just, okay, you're a sales representative. There are different levels of sales representatives. They should be paid differently based on their contribution and their target should be set appropriately. Obviously, someone that has 10 years of sales experience and has worked with large accounts should get paid more, but they all show the expectation should be higher. for them to close larger accounts, which means bigger revenue. And I think there's a disconnect there. People just say, this is where you were hired at. Now go out and sell. So I think career development opportunities are under. So it's those three things. But they're all related that I think create that 91 % turnover rate that you referenced.

Paul Leon: Yeah it comes to showing the math as the path, it's it's a skill issue. So let me give you story to to see if I can connect some dots. I got into sales, kind of in a forced situation. My family was suffering. There was no money for college, made enough money, went back to college. I tried to for four years, create a shortcut into training and the, the, manager said, if you're the number one salesperson, you'll be a trainer. So then I did that and say, well, if you do it another year, Then I did it another year. Well, if you do it three years, this happened for four years. the fourth year, he goes, Okay, you just don't have a degree. And then that was it. And he said, I wish I just told you that four years ago. Now part of the fault is on me for being ignorant, obviously, to what a good career path looks like. Here's my point, Scott. Is there a type of roadmap for a new salesperson that should be expected? And if we were to write out that roadmap, just rough draft together, you and I, what would it be like? Here's how long you should be in this role. Here's how long you should be in this role. And if you've been in this role too long, you should probably weigh your options. Because I feel your expertise would be valuable on designing a roadmap somebody new who does value the company, but doesn't see the career opportunities for him long term. I was wondering if had some thoughts there are some insights.

Scott: Right. Yeah, often what I develop is a career architecture. And the great thing about career architecture or job classification is it's linked to realities in the marketplace. It does not stand on its own. So it is not completely subjective for a career path. Here's the key point. Some people get a few years of experience and they're very comfortable staying. at that level of contribution. Okay, there can be someone that has 10 years of sales experience, but they're kept in an intermediate level role because seem to be able to close those type ⁓ accounts, those accounts. And I think that when you create a career architecture for salespeople, you to take an extra step.

Paul Leon: Hmm.

Scott: You use the market, you say, look, we have five levels of sales representative in this Some of them may not be operating all at once, but we have an entry level, an intermediate, a senior, a specialist, and an expert. And within those career levels, there are certain expectations. A lot of those expectations will have to do with how much autonomy you have to do in your daily work, the complexity of your accounts. ⁓ ⁓ revenue expectations need to be aligned because again, there needs to be a direct line that an employee as an entry level can see, okay, when got about five years of experience, really good experience, I should be at the senior level. And by being at the senior level, it's not because I have five years of experience alone, because we all know people that have a couple of years of experience and are operating like they have eight or nine years of experience. because they just they have it. And then other people are the slow but steadies. But ultimately, if you have five years of experience in sales, then you should meet all the criteria for a senior salesperson, which includes the fact that your targets are going to be set for someone with five years of experience. At five years of experience, you should be well seasoned and you should have been brought along. as part of this process where each year you're growing in terms of the type of accounts you're going after or the type of accounts that you're managing. That's another aspect to it. I don't want to deviate too much, but within sales itself, it's not just about field sales. Some people are closing new sales. Some people are growing existing accounts. They're doing account management.

Paul Leon: Bye!

Scott: Some people are on the business development end rather than the pure sales side. So that is a factor as well that goes into it. But getting back to the career level piece, there needs to be a clear career architecture. What are the requirements to be a senior level? And one of the biggest requirements that's going to distinguish between an entry and intermediate and senior that will resonate hopefully with the salesperson is that to as you become more seasoned from a business need perspective, from a business need, we need you to go after these kind of accounts. You're ready for it that generates this kind of revenue. And if in that process, you were doing great as an intermediate level, but now you're not hitting your targets as a senior level. doesn't mean that you should be let go. means that you might need to spend more time developing as a senior and we might need to make adjustments. And then there's other people that will meet that ability a couple of years and they'll move on to the next level. And as I said, well, what happens when they get to the top level? When they get to the top level, they're interacting with the highest level accounts. They're closing the highest level of accounts. This might be a person that can continue to make a lot of money on the variable pay side. they can move over and become a of salespeople. Or might want to move from field sales into business development. and to be on the other end of it. Because there are different paths even within sales. So I think that needs to be part of the discussion as well. It's just about the levels, because sometimes in order to go up, you need to go sideways. Because obviously, from a company, you're going to increase your value dramatically if you know how to do sales, account management, and business development.

Paul Leon: Hmm.

Scott: which are variations. people really are good at finding the accounts to get other people to close. When you demonstrate those type of skills, you increase your value to the company. So that's got to be part of the equation. So if you're asking me from career architecture, I'm talking about levels, complexity of accounts, and the type of are you individual contributor or a people leader? ⁓ And you're

Paul Leon: Hmm. Yeah.

Scott: growing, you're growing. And you mentioned training as a trainer. Sales training, incredibly important in the corporate world. That's another side line.

Paul Leon: Yeah. Yeah.

Scott: What was missing perhaps from that equation is where do you go beyond sales training? Do you become not sales trainer, but you become a director of sales trainers? ⁓ Do want to then go back into applying your training at a higher level? So there's got to be these pathways. And they're not to put together. So if I was coming in, that's what I would

Paul Leon: Yeah.

Scott: It would also, of course, have to be linked into the business need, because the business might turn around and say to me, Scott, we're never going to need senior level person to do this. But they may yes, want to have all these intermediate level sales representatives. I had a client like this. What they valued.

Paul Leon: Hmm. Really?

Scott: was someone that could be slotted in, do business development part of the time, do field sales, do account management. And there's slightly different skill sets involved and characteristics for all of those. So you have to make it fit the business need. And that's the other piece that's incredibly important about being an independent consultant is to listen and to not give them forced

Paul Leon: Hmm.

Scott: off-the-shelf type of solution. It'll die. And that's the last thing you want because that hurts your career. And it's a waste of money, and it's a waste of time and effort on everybody's part. the first thing you've got to understand is the business model because the business model is going to dictate what that looks like. But everybody has different needs. I've worked with very small companies, few stores, locations.

Paul Leon: Yeah. Yeah. Hmm.

Scott: And I've worked with very large ones that have quite a developed hierarchy, but different business needs have different requirements.

Paul Leon: Yeah, I think it's interesting. felt earlier when your dialogue, when you were talking about business development, field representatives, and how those are distinguishable. think a big pain point is not getting your definitions right. I have seen companies personally who group the term business development and field representative as the same types of job responsibilities. And I feel, I'm like, well, wait a minute. Like, these are two very different descriptions.

Scott: Mm-hmm. Yes, yes, all the time. Yes.

Paul Leon: entirely. So it's just it's very fascinating that I like that you made that distinction. I know for personally, when I got into sales, and I just did commission only, I ⁓ struggled and it always felt like compensation was the last thing we talked almost as if it was like this.

Scott: Mm-hmm.

Paul Leon: voodoo type thing, like, don't touch it. I remember, I doing a consulting gig. And I said, in sales training, you should always start with how to collect the money. When it's technical training, you train front to back. When it's sales training, should train back to front because they need to know what they're going to get paid and how to collect the money. And the owner said, that's the thing I've ever heard.

Scott: Yeah.

Paul Leon: like to my face. And I was like, I don't think this is gonna work. That's like, I didn't want this to come out of my mouth. Scott, I want to be very transparent. But as soon as he said that I was like, this is never gonna work. And unfortunately, I had to close the chapter on that opportunity, because I don't feel like if a business owner doesn't value clarity and compensation as the priority, and makes that top priority.

Scott: Mm-hmm.

Paul Leon: They don't want to be in business. just my opinion. That's real talk.

Scott: Mm-hmm. Yeah.

Paul Leon: for me. I'm curious about if you've had a similar experience on a high level, like, hey, 20 years ago, this happened. this is the result. And you don't have to name names. But I'm just curious if you had something from your arsenal of consulting or experiences that kind of support that type of story, or maybe contradicted as well, like, well, actually, Paul, there's this version you're not thinking of. And I invite you to challenge me.

Scott: Well, as far as the first part, you started off, you were talking about something very important, which was that business development and sales are two different things. And I have seen many cases where they will send me a job and they'll call it ⁓ sales manager. And then I look at it and I say, this is business development. And they'll kind of go like, ⁓ yeah, well, and I said, no, it's not, ⁓ yeah, yeah, well.

Paul Leon: Ha ha

Scott: There is a totally different market value for this job and the pay mix different. But business development, they're out there, they're hunting, ⁓ sourcing different opportunities for the pipeline to bring it into the sales They're paid more on the base. ⁓ And they may, on the variable side, they may wait because they're in a longer sales cycle. The sales cycle is very crucial as well to determining the motivational levels. If a job closes sales very quickly, they're getting paid a very low commission, you're going to want to make sure to reinforce with more regular variable payments monthly, that type of thing. Sometimes even weekly, it depends. ones where the sales cycle is locked much longer, it doesn't make sense to do that ⁓

Paul Leon: Hmm.

Scott: because they need that time close. So I got off on a little tangent there, but that example of what you're talking about is true. As to the second part, I haven't, it depends upon way that it's phrased, but what were saying was correct. Sales, we need to motivate the workforce. And I don't see how you can do that.

Paul Leon: Yeah, good.

Scott: by keeping the sales part, they're going to get paid at the very end. because there are clients for one reason or another that may not even finalize the plan after the quarter is done. ⁓ Which to me is like, well, how do they know what they're going to get?

Paul Leon: Yeah.

Scott: And well, it takes time to budget and all of these. I said, well, then you should have started in the summer to get it ready for it because, and that's the kind of things that I find myself helping out with because what I recommend ⁓ literally giving the employee a spreadsheet, very simple template, which has already got all the calculations done in it in the back. So all they do is they, it's a sheet set up for them.

Paul Leon: Yeah.

Scott: And they put in their performance level. There's a drop down box. OK, did you achieve 63 %? Well, guess what? That's less than the threshold of 80 % performance. So you get nothing. End of story. They can see that up front. It's not pretty, but they can see that up front. Oh, you've got 98 % of target. All they do is select 98 % of target, and everything just prints out.

Paul Leon: Yeah. Yep.

Scott: Say it's a revenue generated target and we could get into a whole discussion about how many targets to have or how few. But it literally says to them, if you do this, get a payment of $6,000 this quarter and they can factor that into their thinking upfront. ⁓ people say, well, then they can go after certain accounts and manipulate that and everything, but it's revenue. It depends how the plan is structured. can do little things like not going after revenue, but it's got to be profitable revenue and put a little bit more complexity into it But the biggest thing I see, here's the good news, there's a general trend out there in the compensation world to be more transparent. There are different laws in states that certain laws require to post pay ranges for jobs. And while that is not happening so much, they're not saying, you you got to post the sales commission and everything because that's very confidential information to the business and other businesses, But the point is that this general culture, there are different forces that ⁓ are, and newer that are asking for greater transparency. And if you're going to be transparent,

Paul Leon: Yeah, I've seen that. Hmm.

Scott: with sales folks, you're going to have to be more upfront. So I think is a changing dynamic towards greater transparency that will benefit process that we've been talking about going forward. I can that ⁓ the, you see these 100 companies to work for, they're very much into providing as much transparency while still protecting the company. but providing greater transparency. And they do have satisfied sales forces. So those sales forces have to have some accessibility and transparency to a plan that's simple to understand and to execute on.

Paul Leon: you have your permission to play devil's advocate a little. I'm curious though, about a listener who might be listening, ⁓ hears about a fortune 100 company and they may give the objection of well, yeah, but they're more established. And I'll give you another story to help give you some launching off point. I remember speaking with a small business owner who ⁓ not

Scott: Sure.

Paul Leon: hire a salesperson. couldn't do it. He said, I can't get it. I can't get it done. And he's I said, What do you think is your biggest challenge? And he said to me, ⁓ takes a special person to just work off commission. And I haven't found that special person. ⁓ feel that's a bad way of thinking. I think it's creates a mindset of excuses. What your thoughts on that story? Like if we could wave a magic wand together, Scott, and you could have interjected in that conversation, what would have been your? Well, that's not true because of ⁓ XYZ that small business owner who doesn't have all those resources like a fortune 100 companies been doing it for decades. I'm curious your perspective there.

Scott: Well, this individual, don't again, you that it's a small company, but I have worked with small companies, quite small, that do have some of their sales force strictly on commission. And I've had to look.

Paul Leon: Hmm.

Scott: and they had six or seven people on this. And although those people are strictly on commission, they were making like $90,000 a year. I don't know how to quite respond to that, that you can't find, there are people working strictly in that capacity. So I'm not sure. mean.

Paul Leon: I really. ⁓ you're fine.

Scott: It's something, he can't for some reason. wouldn't it. The only I would think of is that, OK, you're paying them strictly on commission. What's the commission rate? So I would be asking more questions. Is it that, OK, you're working only on commission. Well, what are you offering them? What is the potential? And without knowing I'd

Paul Leon: Mmm. Yeah, I didn't ask that. Hmm.

Scott: Because if it's a lousy commission plan, maybe that's the reason. And by Fortune 100, I shouldn't have said Fortune 100, what I meant was best 100 companies to work for, which may or not be the biggest companies out there. They just happen to earn that designation. But to get back to this question, I could only answer that by looking. And I have seen some commission plans. And when I compare them,

Paul Leon: That's all.

Scott: to what those people would get in the market, because it's very much a total cash scenario. I understand they're only on commission. But when I'm in the marketplace, I'm looking at what they should be getting in total cash compensation. So if they're on commission only, and the market says for their role, they should make total cash of $100,000 at target performance, standard performance, that's good.

Paul Leon: Right. Yeah. Okay.

Scott: And what's the upside? But if the performance for the job that he can't hire from would pay a target 40,000, then he's got a problem hiring someone, anybody. So I need to see the numbers.

Paul Leon: Hmm. That's fair. You need to see the numbers. I have two more questions.

Scott: Yeah. I mean, that's the only thing I can think of is that the commission is not attractive. ⁓

Paul Leon: Yeah, he didn't do his math. The math there is no path. They didn't do his math. No, that's fine. I I'm curious. So I've heard a lot for years, rhetoric that thank goodness that I'm in sales or you can be in sales, because you can make as ⁓ money as you possibly can think of. ⁓ ⁓

Scott: He might have, then that's another discussion, but I don't know that for certain.

Paul Leon: As someone who has knocked on doors and knows ⁓ there's little, I feel there's a little fallacy in that if I'm adding my own personal perspective. But when you've, and I'm assuming you've heard that too in some circles more or less.

Scott: Mm-hmm. Yeah, I have an answer for that too. ⁓

Paul Leon: I'm and that's what I'm asking you. What is your response that do you feel that that statement holds water or that it's just that's just simply not sure. I'm curious from an independent consultant who works in compensation's perspective on that statement when it's spoken.

Scott: Yeah. Well, here's the answer. A good compensation plan works for the employee, but it also works for the company. And here is my, this is what I recommend to clients. And sometimes they don't like it and sometimes they do. But here's my recommendation. What I tend to do again, by being very transparent. I will show the employee and the company so the company knows at all times if the company hits this performance target level, top performance, we are going to pay at the 90th percentile of market. Okay? 90th percentile. When the employee hits that level, we are going to reduce amount of commission that they earn because They are at their top. And so it's a two-part question. I'll get to the second part. when we hit that performance level consistently, we're paying them. We can say to turn around to employee, paying you at the top percentile of market. And after that,

Paul Leon: You're

Scott: you can continue to make more, but it's going to be dramatically reduced because you are at your top market value. And the next question, they will say, yeah, but I'm doing great and everything. said, you you shouldn't cap my earnings. And some companies feel like that. I don't want any caps, no caps. the reason I say that also, not only is the employee now making at the top market level, they can still make more. But it's going to be now that they because from

Paul Leon: Yeah, yeah.

Scott: Standard performance all the way up to top performance, they're getting big increases for each level of performance to match the market. But the reason I like put a cap on that, in a sense a cap, again, they can get paid linearly after that point, is that there might be something wrong with the target setting. If they are hitting four or 500 % of their target, there might be something wrong with the targets. They're too easy to achieve. And so this is a way for the company to make a decision. If that person goes above to have an examination, if they find that it's all legit and the targets were set right, they can make a decision to pay out at a greater level.

Paul Leon: Hmm. Yeah.

Scott: They can also put in a provision to say anything above this level of performance, like consider it a windfall type of situation. We're going to evaluate it. But that's why I say that is a cap in sense that when we're paying at the 90th percentile, it should slow down, not completely. But it should slow down after that point, because we've been transparent with the employee. You're paid at the top level of market for your role. Because it may also be not only a case of their target setting, but it may be the case of a senior level employee getting a target of an intermediate or an entry level employee. And we need time to sort this out. So I think there are limits to answer your question.

Paul Leon: Right. That's fair. Is there anything Scott that we did not talk about that we should have talking about in this conversation today?

Scott: I think we touched on all of the points. I think one of the most important things to take away from this conversation is that while there are a lot of factors like we went through, the type of the role, payout frequency, the level of the salesperson, the targets, all of these different things, that's all in the background that's worked out. The employee themselves, we to be transparent. Keep the number of measurements and things that are achievable in their minds that support the company business mission. And to make it transparent at the beginning of the process, not at the end of the process.