For all positions that are responsible for sales and profits it is better to provide a base salary and a commission, an incentive or a bonus that is related to the performance of those people that are responsible for generating it. By instituting such a plan one can allow a person to in effect give themselves a raise based on their results, instead of bumping up their base and reducing their incentive to strive. By producing more sales, margin $, gross profit or bottom line income one can create a win-win comp plan for both the employee and the company. When performance improves all participate in the gain, when it decline all are likewise negatively impacted.

We can divide most all positions as either a) sales or profit producing, or b) required and necessary without having an easily measurable impact on the company’s performance. The former would include positions in sales, most managers and directors, CEO’s, order fulfillment and scheduling, etc. In the later group would be administrative assistants, receptionists, clerical positions and other staff positions. It is not that these jobs don’t impact profit, as many do, but it is usually difficult to measure their profit impact and it is therefore easier to provide a competitive base salary for these jobs and let them share in any company wide bonus that may exist.

For those positions that impact results one should structure a comp plan that reflects this. Sales reps are the easiest to do. For example, If a rep has a base salary of $50,000/year and brings in sales of $1 million at a margin rate (gross profit) of 25%, this represents $250,000 in margin that they brought in. One can create sliding commission scales so that the best producer gets a higher payout rate in order to retain them then a marginal producer that one does not have to compensate as highly in order to retain. For example, one could pay a 4% commission rate of the first $250,000, 6% on the next $250,000, pay 8% on the next $250,000 and 10% on $1 million and above. For a person with $500,000 in margin this would amount to a total compensation of $75,000 and a contribution of $425,000 (or a 5.7:1 ratio) for the company and for a million $ producer this would be $95,000 and a contribution of $905,000 for the company (or a 9.5:1 ratio). These values are before considering benefits, other costs and the fair market value for such people, but the concept is clear, that one can create a win-win comp plan that essentially lets a person give themselves a raise and act as a retention device at the same time.

For managers, their profit impact would be measured for them by their team’s performance. This process is similar to that above and can be refined by trial and error until the results are win-win for everyone and the manager, their staff and the company prosper.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

Most people who do not work out in a new company don’t fail for lack of skills, but the corporate culture they are working in is not a good match. They are a square peg in a round hole.

Finding and retaining people that fit your specific corporate culture is one of the key factors in having a successful company. Corporate culture is not easy to define. It is the atmosphere that works for your company. For example: it might be a small company with an informal working atmosphere, an informal dress code, an open door policy, titles are not that important, a matrix organization with open lines of communications, ad hoc meetings, flexible policies and procedures and people are expected to be self starters with not a whole lot of formal training. Very often the CEO sets the tone and one has to figure out what they have to do to become accepted. This is indicative of many high tech start ups. People coming from a highly structured hierarchical setting such as an old line Fortune 500 Corporation or the military might find adapting to this culture well out of their comfort zone. Likewise, the reverse situation would not work well either where a person who is free to explore to get things done is going beyond the normal protocols of a more formal culture and does not fit in.

The difficulty is in finding out before hand if a person would be a goof fit or not. One can use personality tests, reference checks and in house interviews to try to find this out, but there is no magic bullet. The best approach is to use all three and come up with a consensus, with multiple in depth interviews usually being the most reliable indicator. People are on their best interviewing behavior during the first interview or two. It is only through the attrition process of wearing someone down via well designed multiple interviews that one get past the programmed veneer to get a job and find out what the applicant is really about. Companies like Google sometimes takes this process to an extreme with a dozen or more interviews, but one or two doesn’t do the job.

When one calculates the cost of failure in hiring again and again for the same position, the time spend in doing the job right becomes clear.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.