(This was a question from an IT services company, but the ideas apply to other industries as well.)
When you think about it, it’s true in just about any sale that the sales person must be part of a team that has:
- the right offering (services staff, right skills, right organizational capacity, …),
- the right delivery system (tools, processes, methodologies, management structure, …), and
- the right business model (pricing, contracting/terms, contractors vs. employees, …)
to create perceivable value for both the customer and the company. So why do the sales people earn variable pay while the others vital to closing the sale (and delivering the value) not earn variable pay?
The answer may be that some of the others do earn variable pay. But more often the answer is that the sales person’s own individual value creation is reliably measured in terms of sales closed (order value, margin value, hours booked, etc.) than that of others on the team, AND the sales person is interested in placing a meaningful portion of their at-market compensation at risk (20% to 50% is typical) in exchange for the opportunity to double or triple the amount risked if they are able to put together a banner year. That’s the basis for much of “sales compensation” as we see it today.
So, even if “it takes a village” to make the sale, the hunter who finds the opportunities, identifies the decision makers, puts together a strategy to win the business, and coordinates the internal team often has both risk and upside in their compensation plan tied to the results they manage to produce in order to encourage and reward their success.
Many of the other vital technical or industry expert contributors may also see the value they help create and express an interest in sharing in the upside – but they often are not interested in putting a meaningful amount of their compensation at risk.So while you may choose to offer spot awards and/or recognition to those non-sales associates who make a great contribution to closing an important deal, that’s not the same as pay at risk, a structured incentive plan, and exciting upside for the “stars.”
Fundraisers are often paid a percent of the funds they raise, though the fundraising organization is often hesitant to have that be publicly known. I have seen rates as high as 50% of the monies raised – but would hasten to add that the most well-respected non-profits would not see that kind of “commission” as appropriate.
Another consideration is the level of aggressiveness you want in your fundraiser – the more risk and upside you put into a comp plan, the more urgent and aggressive your fundraiser is likely to be. For small-donation type fundraising where the number of calls dialed (or doorbells rung) makes all the difference, it can be an effective strategy.
Those pursuing more substantial donations (thousands of dollars and up) often find more success with having some of their largest donors involved in securing additional donations on a volunteer basis. People with large amounts of money to give usually ask some tough questions about exactly where their money is going – and would like to know that almost all of it will go to support the cause to which they intend to donate (vs. the fundraising effort).
A few key principles may guide you here:
- Be clear on how much and for what measures the managers involved can “move the needle,” with a direct effect on the company’s financial results. Product Managers could be measured on product line gross margin or operating income, with a similar measure for Program Managers, for example. But make sure the measurement and reporting systems will support robust measurement of their results.
- Be sure you have enough incentive to actually motivate and drive behavior towards the results you want. Anything less than about 15% of target cash compensation may not be worth the cost of designing, reporting and administering the plans (in terms of the effect on results). This can be tricky if you are offering incentives for the first time as you probably don’t want to reduce base to fund them. If you can redeploy budgeted money from a broad-based employee incentive plan to help fund it, you can bring the pay mix in line over time through reducing the increases in base and putting them towards the variable portion.
- Be careful with target setting. You need to aim for about 60% of your employees on variable pay plans to be at or above target, or it won’t motivate much.
- Offer enough upside. If you are putting people in an at-risk pay situation, possibly for the first time, you need to be sure a few people really ring the bell and get a handsome payout (1.5-2.0 times the target incentive), and publicize and celebrate these successes — it helps motivate everyone.
- Be sure the people in the role have the risk profile to find this motivating (or that that is the sort of person you want in the role, and are willing to make the needed adjustments). Not all solid employees are “coin operated.”