Compensation Structures for Salespeople

Many years ago, I tried to survey contractors on how they paid their salespeople. After months of trying, I gave up. Not only was there no similarity in any of the compensation plans, there were no identifiable trends linking a pay plan’s structure to the salesperson’s effectiveness. The only common thread I found was the degree of emotion each owner had about their pay plans. No one was ambivalent, and everyone was curious about other companies’ plans.

With that in mind, I came up with some overall guidelines about paying salespeople—not so much from a numbers perspective, but more regarding concepts that work toward encouraging the best performance.

Create Incentives, Not Just a Pay Plan

Once every few weeks, a contractor asks me for a nifty pay plan that will motivate everyone to sell and prospect more. Unfortunately, your laggards will continue to lag no matter what commission plan you adopt, and your best people will continue to be successful under any structure. 

However, I do see improvement when the rewards are tailored to the salesperson. If your salesperson longs to take their family to Disney World, he or she will be motivated for their family’s sake. It is the manager’s responsibility to assess what incentives will be most effective for each person.

Use Recognition and Competition 

Many studies have shown that money alone is not the great motivator: Recognition and feeling appreciated by an employer consistently rank higher. Sometimes the best thing you can do is to hire another motivated salesperson. The existing salesperson senses a reduction in appreciation if the new hire begins to surpass his or her performance. 

If you are fortunate enough to have good salespeople working for you, make sure they know they are appreciated. They will be much less likely to leave.

Pay Plans Must Correlate With Company Culture 

I’ve worked with firms ranging from high-powered, cutthroat, all-about-getting-the-sale companies, to flower-children designers that sell (but don’t call it selling) and just want everyone to be happy and creative. Both extremes can succeed in their target market, but your pay plan needs to be compatible with your company’s values and philosophies. Otherwise, you attract salespeople who conflict with your existing team. The calm, creative types want a salary with an annual bonus shared equally by all employees, and the cutthroat ones want a commission that is displayed publicly to all other coworkers on a monthly basis. 

All Plans Should Work for the Employer

I’m a proponent of basing commissions on project profitability. After all, that’s how your accountant assesses the success of each project. I understand that salespeople may complain that production can influence their pay, but it forces everyone to work together. Plus, it’s not OK for salespeople to underprice projects and obtain the same commission based on the discounted selling price. 

Stick With a Plan 

Changing your plan frequently requires a lot of effort and makes your sales team unhappy. If you must change your plan due to market conditions or profit, do so incrementally.

Keep It Simple

I’ve seen plans that required a Ph.D. in math to understand. If your people don’t understand it, it can’t possibly be motivating to them. If your percentages need to change based on volume or tiers, keep the tiers to a minimum and your salesperson informed on their performance on a monthly basis. Avoid overly detailed tables or complex spreadsheets. The simplicity will also have a positive impact on your recruiting process.

Hire Motivated People

My big issue with some executives is their “hire and wait” mentality. I firmly believe it’s not profitable or ethical to hire a salesperson and simply hope they succeed. Most sales management issues could have been resolved before the hiring decision was made. The compensation plan isn’t the solution. 

Responsible owners should make every effort to assess their candidates for skills, motivation, and cultural fit before extending an offer to someone. There should be ample process and structure already in place, and salespeople should be helped and supported in reaching their goals. 

There’s a name for salespeople that know the construction business inside and out, who don’t need any support or guidance: business owners.