Resources for the Promotional Products Industry
4 Compensation Rules Meant to Be Broken (How to Rethink Compensation Plans for Your Promotional Products Business)
In this new series on sales compensation, we’re sharing the trends that are changing the way the promotional products industry compensates their salespeoople and their selling teams. In a series of super-secret interviews with leading distributors, we’re unpacking unique ideas for comp that are bucking conventional methods and rebuilding a unique comp model that inspires growth. Our first installment was “ 7 Trends That Are Changing Sales Compensation Models in the Promotional Products Industry ”. Today, we’re talking about four sacred rules to break to make way for a better compensation and incentive model.
“Learn the rules like a pro so you can break them like an artist.”
Attributed to Picasso, that quote can apply to anything you consider sacred, like compensation plans.
But re-engineering compensation plans can be tricky.
And conversations about pay with colleagues can be tough, but they needn’t be. A successful comp structure does one simple thing: It aligns incentives with the overall business strategy to help move everyone forward. And because your business strategy can change from year-to-year (sometimes even quarter-to-quarter), it’s critical you view your comp plans as something not fixed, but malleable.
For example: in the promotional products industry, when it comes to new sales growth, there are only two ways to grow, either through new logo acquisition (landing new clients) or expansion sales (increasing current client revenue). If your business is not sufficiently diversified and you have too much business with one client or perhaps even in one industry vertical, then shifting your comp plan to reward new logo business would be a smart way to reengineer your compensation.
All sales incentives should be based on individual goals that ladder up to your overall company goals.
But something happens when it comes to designing a successful compensation plan: We freeze. We fear that comp changes will rock the boat too much. Or we feel locked in by old rules, afraid of change. But as we mentioned in our last post, simply tweaking your compensation model can lead to growth! If (if!) you are communicating your business strategy effectively with your colleagues then the revised comp structure becomes a natural conversation to have rather than a difficult one.
Since we often either shrink away from the hard work of reengineering compensation or are afraid to touch those sacred rules, let’s bust some myths about comp that can help you find a better way to reward your team for growth.
Here are four rules to shatter to help create a more robust and effective comp plan:
1) Break the Lead Dog Only Rule
Break this rule, stat. It’s a growing trend with distributors, many are revising comp plans that include sharing the wealth (ie, growth) with all employees, not just salespeople, whether through profit-sharing plans or bonuses based on sales growth. One distributor put it boldy: “There’s a big disparity in every company, and that is that their salespeople are getting paid at one level and support people at a different level. We threw out that model and reinvented a way to pay teams.”
Not that you should dampen your sales structure to limit your sales reps' potential (quite the contrary, see point #2), but the selling model has changed for the industry and the compensation plan should change as well. Just one example? Kitting. More people on the team touch a kitting project than simply one salesperson, so more should share in the reward.
Distributors are reimagining bonus compensation for all employees based on a monthly, quarterly, or annual percentage of the gross profit or even gross sales, mostly based on growth. And these bonus plans include everyone, from sales to sales support to the warehouse and more. In fact, it’s rare now that many progressive distributors are not realigning comp plans to include everyone in the mission to grow revenue.
Another distributor stated, “If everyone moves the organization forward, everyone should reap the reward. You have to build a system that ensures that all people who drive the business, whether through preselling activities or post-selling activities, are rewarded for successfully driving growth.”
2) Break the All-Pay-The-Same Rule
Many distributors have already broken this rule or are in the process of breaking this very rule as we speak. They’re redesigning comp plans that consider individual experience, individual goals, and, therefore individual incentives.
Not every rep brings the same amount of value to the organization. The one-size-fits-all comp model does not work effectively in this business. A one-size-fits-all plan doesn’t take into account each rep's book of business, which is often a sharp distinction between another rep’s book of business. (Example: One rep might work with finance and insurance with relatively level sales dips and spikes, while another rep works in more volatile industries, like tech or B2C).
To be clear, we’re not talking about unequal pay; what we’re talking about is how we incentivize sales growth beyond base pay. One distributor has all salespeople on the same base pay, but their bonus and commission plans are based on individual goals, he stated emphatically, “no two people’s bonus structures are exactly the same.” And that’s the power of a customized comp plan.
An example might be a new salesperson who has no book of business. They might have the same base pay as a seasoned salesperson, but the seasoned salesperson might be incentivized differently depending on their unique growth plan for their career and for their clients. Or, one rep might be struggling with margins, and their bonus plan might include a boost in bonus for every percentage point they increase.
As a former distributor, one year, we had flagging margins with only one client, so, we incentivized everyone who worked with that client to marginally increase margins on every project quoted and within several months, we were back into healthy profit and everyone gained.
But it isn’t just industry people breaking this very sacred rule of “all-pay-the-same,” the experts recommend it too. In his article, How to Really Motivate Salespeople (Harvard Business Review) , Doug Chung writes, “To get the optimal work, you should, in theory, tailor a comp system to that individual.”
3) Break the 3-Month Base Pay Rule
A 3-month base salary is never going to be enough. Perhaps even a limited base-pay, period (not just three months long).
Three months? Never in this industry.
Some distributors want to recruit salespeople with the attraction of a short-term base salary and then let a straight-commission plan take over, phasing the base salary out entirely. But the learning curve in promo is way too long, and many salespeople, if not most, quit if they don’t have a sufficient base to support themselves and get started. If they don’t start with a book of business to build from, in the words of one distributor who abandoned the 3-month base model, “a 3-month salary is not enough.”
Moreover, think ahead to the dips and valleys in a salesperson’s annual sales growth. Some months are roaring hot; other months might not break even, a base sits as a form of security. Or, what happens when that rep, who no longer has the foundation of a base, suddenly hits hard times and loses 80% of their business. Do you throw away your deep investment in that experience on the weak principle of no base pay, or do you recognize that this is a rebuilding time but you have a strong foundation from which to build?
Remove the scare tactic of “no base salary” by giving your team a structure they can rely on because confidence, safety, and security are basic needs that no one should be deprived of through their work. From an article in Wharton’s business journal , “What many managers and leaders don’t understand is that emotions are not noise, they are data — and they are data about not only how [employees] feel but also how they think and will behave. There is this feeling that in some ways emotions don’t matter or are off limits. But there is a quarter century of research that shows how people feel at work has a direct and powerful influence on how they perform.”
4) Break the Compensation-Only-In-Dollars Rule
Sure, we all work for money. But savvy distributors are bringing in incentives of all kinds to supercharge growth: gym memberships, travel as incentives, fuel costs, and more. But don’t trade a “one size fits all money model” for a “one size fits all incentive model.”
In Michael Bungay Stanier’s book “The Coaching Habit,” he walks through seven coaching questions that can help bring out the best performance from everyone on the team. Of his seven critical questions, two of them apply beautifully to building a good compensation package: “What’s on your mind?” and “What do you want?”
One distributor put it this way, “Don’t just think about what a salesperson needs or wants in terms of commissions or earnings … think about what they need. Talk with them about what they truly need at this time in their life. Perhaps they want to travel more, maybe they want to invest in their health and exercise. Take the time to get to know your team and understand what their needs are beyond monetary compensation, you’ll be surprised at how you can inspire your team toward growth by building an incentive package that matters to them.”
That same distributor reflected, “They might only be looking at their immediate future and their compensation needs for now, but what they might need instead is a longer term growth plan that could be achieved through more sales support. Getting them more sales support can supercede immediate monetary concerns and help them leap from $750,000 to $1.5 million in sales. Help them engineer their comp structure based on where they want to go.”
One other pro tip when considering additional incentives: Don’t create compensation goals in a vacuum, include the right stakeholders, which means: involve the finance department in crafting your compensation plan. A surprising tip learned from one savvy distrib leader is that he discovered that when he involved top finance people in his compensation ideas, they discovered new ways that would help shift spending to reward salespeople in ways that benefited both the rep and the bottom line.
finally, ask: “What do We want to reward?”
Much of your sales compensation changes come down to core values: What do you want to reward?
Sales compensation is not merely about incentivizing the right behavioral choices, it’s not levers and buttons that amount to a psychological tool for leverage, but a mini-business strategy you co-create with your team that ladders up to a comprehensive growth plan. Less manipulation, more cooperation.
Instead of thinking simply, “how do we change our comp structure to increase profit,” think: How do we change our comp structure to bring growth, culture, and community together to build a better business for all.