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3 variable pay trends help weather recession

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in HR Management,Human Resources

In a stagnant economy, two business imperatives can spell the difference between success and extinction: profitability and new business development. Without ready cash and new revenue sources, most companies will quickly be on life support.

That’s why so many organizations are taking a fresh look at how they pay their salespeople—the employees who get customers to pay for whatever a business sells or services.

By focusing sales compensation on what matters most, successful companies are offering up lessons on variable pay from which every compensation pro can learn.

This year promises to be a particularly fertile time for sales compensation innovation. According to a new survey by total benefits nonprofit WorldatWork, two-thirds of organizations restructured their sales comp systems last year, and more change is on the way.

“New sales compensation plans at many companies are an annual event,” said WorldatWork’s Jim Stoeckmann, who directed the Survey of Sales Incentive Plan Revisions 2009.

For 2010, better sales profitability is a major concern for 40% of organizations polled. The other major drivers: winning new customers and selling new products.

Generally, companies are eager to replace the fixed costs of salaries and base pay with variable incentives and commissions. “In 2010, companies are projecting to spend only 2.7% of payroll on salary increases—the second lowest ever recorded,” said Hewitt Associates compensation expert Ken Abosch. “But those same companies also are projecting to fund variable pay plans at 11.8% of payroll.”

Struggling to make variable pay work for your organization? Pay attention to these sales compensation trends that just might apply in your organization:

1. Link compensation to business objectives.
Research by HR consulting firm Watson Wyatt shows the compensation remix often relies on changing performance measures. The nationwide Starwood chain of high-end hotels and resorts replaced an ad hoc sales goal-setting process with one that’s integrated across the company.

Now Starwood salespeople set goals by division, region, individual hotel, line of business and, finally, by individual. A new database-driven system calculates accurate monthly commission payouts.

Result: Closer alignment of goals with business needs. Bonus: Greater transparency, so salespeople believe the system is fair.

2. Reward activities that generate cash. Getty Images, which started out as a stock photography agency, years ago morphed into a cutting-edge seller of digital media. But its sales compensation plan still treated all sales equally. Getty’s new plan pays premium commissions on the most profitable sales.

Result: Sheer sales volume is no longer enough. Variable pay now provides incentives for salespeople to focus on the quality of the sale—deals that generate profit and cash flow.

3. Encourage new business. At temporary employment service Manpower Inc., new business has always been the company’s lifeblood, even before the recession. Manpower regularly tweaks compensation to ensure salespeople stay focused on prospecting and closing new deals—and let inside staff handle customer maintenance.

Result: Flexible incentives that help salespeople do what they do best—find and sign new customers before the competition does.

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