Compensation on the Climb

Advantages’ exclusive Compensation Survey reveals industry sales pros are earning more – plus other key insights that tell the tale behind the commission.

To say that Mallory Dempster had a breakout year in fiscal 2013 is like saying Lebron James is decent at basketball: a major understatement. A millennial generation rep for Jack Nadel International (asi/279600), Dempster surged her annual sales forward 245% last year and finished among JNI’s top 10 highest-producing reps. The revenue ramp-up was driven, in part, by the creative invitation campaigns she crafted for a hip niche: nightclubs and music festivals. “Last year was incredible,” says Dempster. “I’m doing everything I can to make this year the same.”

While the scale of Dempster’s sales success may have been unique, the fact that her 2013 earnings topped her 2012 take-home was representative of an encouraging industry trend. Last year, advertising specialty reps and sales managers earned 3.3% more, with average monetary compensation rising to $79,600. Not only is that impressive tally the highest industry compensation in the last five years, the rate of the rise eclipsed the national average, which put the pay bump for private industry wages and salaries at about 2%, according to the U.S. Bureau of Labor Statistics.

The exclusive insight into rep/manager compensation is a central finding of Advantages 2014 Compensation Survey. Specific to the industry, the survey turns a keen eye on everything from optimism about 2014’s sales potential to evolving trends in how reps are paid, what types of benefits sales pros and managers receive, and more. Read how the marketplace is evolving.

Optimism On The Rise

For 2014, reps and owners appear to have put pessimism out to pasture. More than a third of frontline sellers believe sales compensation will increase this year, while nearly 30% of owners think the same. Significantly, most of the rest are not harping on decrease fears; 66% of owners predict compensation will remain level, while 60% of reps say sales will be steady.

The generally upbeat vibe is tied to the gradually clearing skies in the broader economy, which have compelled clients to loosen the purse strings on promotional budgets. “A few years ago, maybe they wanted 1,000 $1 gifts; now they want 1,000 $3 items and they want you to suggest things that will generate real ROI,” says Mike Welker.

The senior account executive at Touchstone (asi/345631) has capitalized on this financial unclenching and desire for consultative service, driving his sales up 20% last year with custom initiatives that included serving as a retail arm for a surf apparel brand. He expects the momentum to continue. “It’s feeling like companies are ready to invest in promotions,” says Welker of 2014’s business outlook

Shift In Compensation Structuring

As earnings and optimism rise, a changing dynamic in how reps are compensated is emerging. Some 20% of sales pros who responded to Advantages’ survey revealed that they are being paid salary plus commission, up 6% from 2013 and 11% from 2012. Interestingly, the salary-plus-commission option is more popular at non-franchise distributorships, where 28% of reps are paid this way compared to 11% at franchise firms.

While it’s difficult to say for certain what’s driving the subtle shift in compensation structuring, long-time industry insiders like David Blaise think a variety of factors could be at work. “Businesses could be extending the salary option because it provides a perceived stability that helps them get people they need – people they might not have been able to get when offering just commission,” says Blaise, owner of Blaise Drake & Co., an industry consultancy. Another possibility, he says, is that management at other firms may have run the numbers and discovered that paying a flat salary and lower commission could result in the company coming out ahead if the rep hits sales objectives.

As salary-plus-commission compensation becomes more pervasive, the straight commission model has lost ground. Still, straight commission remains the industry’s most common type of payment plan for reps in 2014, but only 44% report receiving it, down from 54% last year, and 14 percentage points less than in 2010.

Despite the decline, industry owners and executives believe straight commission will continue to dominate. Certainly that’s the case among owners of Proforma (asi/300094) franchises, who typically pay reps on commission. “Sales reps,” says Proforma CEO Greg Muzzillo, “are comfortable working on straight commission at Proforma because of our reputation and relationships in the industry, their unlimited earning potential and our extensive back office support.”

Bonuses Too, Please

While use of the salary-plus-commission compensation model has increased, only 19% of reps say it’s the option they most desire. The two most popular payment methods with reps remain straight commission, which 28% favor, and salary plus commission plus bonus, which 29% select as ideal. While the latter is the most sought after pay package, only 3% of reps receive it.

Some of the lucky ones work for Active Imprints, a distributorship headquartered in Monmouth Junction, NJ.

In addition to salary and commission, reps who work as W-2 employees receive monthly and yearly bonuses based on gross profits (independent reps get straight commission). President/CEO Duane Watlington says this model motivates salespeople and encourages selling at the highest margin the market will bear.

The approach is working: Active Imprints’ total sales were up in 2013, and the firm’s average margin was north of 40% – above the industry average of about 34%. “I’m a big believer in paying on performance and rewarding people who do well,” says Watlington.

Dividing The Profits

Of course, one crucially important way reps are rewarded is by how much of the total profit of a sale they keep. While the most common split remains a 50/50 divvy between salesperson and company, a select 4% of companies empower reps to keep 65% or more of the profit. American Solutions For Business (asi/120075), for instance, has developed a business model that enables sales team members to take home between 70% and 75% of the profit. “It’s helped us attract and retain high-performing people,” says ASB executive J.P. Shea.

Nonetheless, the ASB offering runs counter to a broader trend in which less reps report earning at least a 50% split – a scenario that’s especially common at non-franchise firms, 66% of which pay reps less than half the profit compared to 46% of franchise companies. The overall percentage of sales pros who get a half-and-half split with their company dropped from 44% in 2013 to 39% this year. At the same time, more reps – 33%, up from 27% – are putting less than 30% of the profit into their wallets.

Perks & Benefits

From such numbers, it’s tempting to interpret that companies are pocketing more profit at the expense of reps. Still, critics of this view say it’s too big a generalization – a potentially premature conclusion that fails to account for other important variables that may be in play.