2010 Compensation Survey: Optimism Rising
By Alex Palmer
Research by Larry Basinait
Things are looking up. That’s the sentiment shared by sales reps and distributor principals alike in response to Advantages’ third annual sales compensation survey. Read on for our findings.
Would it surprise you to know that income was up last year?
According to our annual survey of almost 300 respondents, annual income averaged at about $77,000. That’s an increase of $2,000 more than the $75,000 reported in 2009.
More reason to celebrate: 36% of sales reps are expecting an increase this year, too.
Companies are also seeing an uptick in new business. Proforma Promographix (asi/300094) just landed a huge, three-year contract that has allowed them to hire more staff and continue offering generous compensation to their sales representatives. “Things are looking up,” says Kevin Dovel, vice president of the company.
Additional results show that straight commission is by far the most common compensation plan, with 58% of respondents stating this is their company’s model. And it appears to only be getting more popular, increasing 6% over last year and a full 13% over 2008.
Bert Berglund, owner and operations manager of Apparel Expressions (asi/382051), likes the flexibility of straight commission. “Whether it’s a full-time sales rep or a soccer mom selling here and there, the easiest and cleanest way to pay reps is straight commission,” he says. He found this to be the case particularly for reps trying to make some extra income during the tough economic times, with some of the outside sales reps working with several distributors and preferring the freedom to make sales as the opportunities come.
“But sometimes that takes people out of their comfort zone,” Berglund acknowledges. “If they’re interested in getting a salary or benefits, then I will take it out of their 12% gross sales commission and leave it flexible for them with whatever makes them feel comfortable.”
Indeed, the second most popular plan according to the survey is salary plus commission, which 14% of respondents say is their company’s practice. Straight salary appears to be on the decline; at 9% this year, it has become less popular each consecutive year since the survey began.
Taska Rockett-King, president of Rockett Marketing (asi/310330), recently returned to working full time on commission after shifting to part time for much of last year, and has found business to be moving at a steady clip. “One thing I might be doing a little different is that before I didn’t call on businesses that used me for office supplies as much,” she says, and adds that straight commission works well for employees working full time, part time or shifting between the two.
While commission is a dominant model, what it is based on can vary. While 15% base their commissions on gross sales, as Berglund does, two-fifths (40%) of respondents indicate that it is based on profit. Twelve percent are based on gross profit over a set goal for margins.
Splitting the Difference
As organizations try to improve their bottom lines, sometimes this can impact how much of the commission salespeople see.
“Within the industry, I’m seeing an increase in what the house is getting,” says Seth Weiner, president of Sonic Promos (asi/329865). However, he sticks with a 50-50 split for his sales reps, and occasionally increases it to 60-40 depending on order volume or the salesperson’s length of service. “We’ve had this structure in place as long as I’ve had salespeople and pretty much kept that as the basic plan.”
This trend is reflected in the Advantages survey, where 42% of respondents prefer a 50-50 split with sales reps, but only slightly fewer (41%) pay less than 50% to the rep. The remaining 28% give their reps 55% or higher on commissions.
John Miller, senior account executive for American Solutions for Business (asi/120075), is one of these fortunate few, as his company has offered reps a generous 75% split since the company was started in 1983. Justifying the rich split, Miller says the management at American Solutions for Business sees that they have grown from a startup in 1983 to having 500 to 600 reps in the field now.
Perhaps reflecting a sense that organizations are aiming for a stable 2010, almost two-thirds (65%) of owners/managers expect monetary compensation to stay the same as 2009, while 56% of sales reps said the same.
“Last year, our sales were slightly up over 2008 and I think 2010 will be comparable if not slightly up from 2009,” says Eric Van Kerckhove, sales
manager for Allegra (asi/372006). He attributes the company’s strong performance partly to the fact that it has stayed consistent in its compensation and operations. “A lot of it has to do with what our competition is doing – they’re slashing prices and laying off workers, and that has hurt the quality of their product.”
Sales reps showed a greater optimism, with 36% of them expecting compensation to increase, as opposed to the 24% of owners/managers who said the same. Among those who are anticipating an increase, the average increase is 19.5%. Those expecting to see compensation go down are greatly in the minority at 11%, though this is higher than last year’s 8%.
Challenging times have led many to seek out ways to maximize the resources they have, and a significant part of this is getting team members to handle multiple aspects of the company. R & W Gibson Promo Products (asi/303831) deals with both printing and promotional products, and its president, Wayne Gibson, has discovered that he can gain new business in a tough environment by finding ways for both sides of the business to aid one another. “A large amount of my customers were former sign customers and it’s easy to bring them into being promotional product customers,” he says.
To encourage this, Gibson offers his printer a 50/50 commission for any sales she makes, while he gets a 10% commission for any printing jobs he secures for her.
As it has in previous years, sales continues to be the top responsibility for respondents, with 93% indicating that it was a part of their job. But also of significant importance is customer service, which 72% of respondents cited; budgets and promotion follow with 65%.
Managers agree that it can be valuable to cross-train employees to handle multiple responsibilities. The Fast Signs (asi/395034) store that Bob Danielson owns has a dedicated sales team paid on commission, as well as in-store workers who are paid hourly, but who are also knowledgeable on how to make sales.
It’s a sign of the times that while these employees used to receive small commissions on the sales they made, this perk has recently been cut. “They used to get a little bit of a kickback, but I’m not doing that anymore; it’s just the salespeople who are motivated with commission,” says Danielson, sounding less optimistic than others. “I don’t see it changing in the near future – I don’t think this economy’s going to bounce right back; it looks like it’s going to be a slow recovery.”
The vast majority of respondents (93%) also have their own account base, whether owners, managers or sales reps. This is consistent over the last three years, where only a few say they do not have their own account base.
Berglund believes it’s important for salespeople to have their own account base. He had once worked for Aero Mark on a salary basis, and though they would receive 7% for any new business they brought in, this only lasted for 18 months, and then it would be lowered to 3.5% for the next 18 months, and then to zero.
“So there was no way of building a book of sales over time,” he says. When he began Apparel Expressions, he shifted to a commission focus to help his reps ensure they could build up their own business.
While managers are eager to see their sales teams succeed, a majority of respondents (72%) say that sales managers do not earn a commission or bonus based on the sales of their salespeople; about one in 10 (10%) do earn a commission based on their salespeople’s sales, while 11% receive both a bonus and a commission.
While the effort to land a new client may lead organizations to lower prices or find ways to give their new client an irresistible deal, a majority of respondents (56%) said that they had a minimum profit margin that they can’t sell below.
“We’re averaging around a 36% to 36.5% margin, though some of our clients do drop below 35%,” says Topper Pardoe, owner of Rainbow Advertising (asi/303878). He says that sales reps have to get prior approval for any sales dropping below a 30% margin. “We try to keep the bigger picture in mind, and we ask, ‘Is this something we’re trying to do special to generate business, or are we just selling at a low margin?’”
Only a few reps (14%) are charged back for sales they make below their organization’s stated margin, while 86% are not. This is consistent over the previous two years, though it does represent an increase over 2008, when only 7% were charged back for below-margin sales.
Add to that the occasions when outright errors happen on orders, which can lead to non-payment. “Knock on the synthetic wood of my desk, I haven’t run into many issues where the mistake was so blatant we had to go after the individual person,” says Weiner. “In the cases where it has happened, the sales rep has come to me and said ‘I made this error, I’ll pay for this.’ We don’t make a lot of mistakes, honestly.”
This softer approach to sales rep error seems to be on the rebound. While nearly half (49%) of sales reps still must pay for non-payment of orders, this is a significant retreat from last year’s 69%, which more than doubled 2008’s rate of 33% who had to cover non-payment.
A similar pattern can be seen in those required to pay for sales rep errors, which went from 27% in 2008 way up to 59% last year, and has dipped back down to 46% for 2010. American Solutions for Business has gone so far as to create something of an insurance system for its salespeople, taking half of a percent out of all profits and putting it into a general fund to cover errors that may arise. “You copy something wrong or you screw something up, instead of eating the $5,000 order, it goes against the policy,” says Miller. “You lose your commission, but you don’t eat the cost.”
Of course, compensation goes beyond just cash and respondents cited a number of other benefits they received. Almost half (46%) received free samples, catalogs and promotional products. This was followed by paid trips to trade shows (39%), health insurance (35%) and auto expenses, such as mileage and parking at 33%.
Pardoe believes in the value of these perks, but emphasizes that some system should be considered to ensure they are self-funding. For example, a recent co-marketing contest with one of the company’s partners treated the sales team to dinner, but in the process they generated $16,000 in sales. He is now toying with a program that would offer a trip to Vegas that anyone can achieve by meeting the sales target. “If they generate enough revenue then there’s money for a ticket,” he says.
Despite the tight times, companies seem to recognize that perks are still important. More than three-quarters (76%) did not cut non-cash benefits due to the economy. However, this is still down from last year, when a full 85% said they were not cutting perks.
Respondents indicated that many perks were trimmed rather than cut. One person commented, “Gifts to customers at the end of the year were less last year,” while another said that the company reduced the number of people attending shows. Another said simply, “Cannot spend as much as in the past.”
Danielson agrees that trimming, rather than deep cuts, has happened, saying that, “there are little things here and there – free lunches, we’ll go have a party somewhere – but everything’s tight now.”
All in the Timing
But as valuable as perks can be, they can hardly compete with payday. The survey finds that increasingly, reps are being paid when the order itself is paid, with 62% indicating that’s the case (up from 55% in 2009 and 49% the year before).
This is how Pardoe approaches paying employees, with monthly checks going to them for all invoices that were paid the previous month. Dovel does the same on a biweekly basis. Those receiving regular pay have remained consistent over the past year, with 22% receiving a biweekly paycheck, 9% receiving a monthly one and 5% getting a weekly paycheck.
“We do biweekly paychecks, and as far as compensation on commissions, that is figured at the end of the month and then paid on the following pay cycle,” says Van Kerckhove, who pays employees once the sale has been completed, but not necessarily after the payment is received from the customer.
As distributors and salespeople look ahead after a challenging period, many sound a positive, but wary, note.
“There are certain industries that do better in a bad economy, and there are others that do great in a great economy, and I’ve always tried to have at least one of those accounts that does better in a bad economy,” says Miller. He cites one of his clients, an association of business brokers, that buys and sells businesses – a growth industry in a bad economy. “When the economy is good, I don’t get much business from them, but when the economy goes south, those guys are making money hand over fist. It’s important to be prepared for all possibilities.”
Alex Palmer is a writer and editor based in NY. Larry Basinait is executive director of research services at ASI.