Sales Compensation (Part II)--Bread and Circuses
To feed or divert a discontented populace, the ancient Romans offered bread and circuses. And, to a certain extent, they met with success. Their idea lingers in today's world of graphic arts sales compensation; some printers pay straight salaries to their sales forces, while other printers add various incentives and bonuses.
Despite what many consider to be the intrinsic nature of motivation, incentive plans can help boost individual performance in certain situations. In this second of two installments (see March issue, page 56), Printing Impressions reviews incentive plans and other issues relative to commercial printing sales compensation. Various industry players share their thoughts and experiences.
"We try to keep compensation in line with industry standards," reveals Ron Bray, chairman of the board of French Bray, in Glen Burnie, MD. "But dangling carrots in front of salespeople when they do exceptionally well also helps." French Bray rewards reps for the attainment of monthly/yearly sales goals, as well as maintaining an existing client base.
Throughout the year, Bray conducts an ongoing point system contest to promote new and existing business. Sales reps who meet a monthly budget will receive 1,000 points; they garner 5,000 points for meeting projected yearly sales; and 1,000 points for exceeding quarterly sales by $20,000. The salesperson with the highest number of points wins a trip or some other prize.
"French Bray also has an incentive plan based on profitability," notes Bray. "We set a percentage of profit that we're trying to achieve. If we attain our goal, the funds are weighted according to what [the salesperson] normally earns. If pre-tax profits exceed the goal, then a percentage would be taken and distributed to all non-union personnel after receipt of our year end audited report."
By contrast, Jeffrey Spear, president and CEO of The John C. Otto Co., in East Meadowland, MA (now part of Houston-based Consolidated Graphics), questions the importance of incentive plans. "If you are a cost leader in your market, you have plenty of money to pay your sales force well," states Spear. "We pay a draw against commission and everyone gets paid plus or minus the same amount."
As a former salesperson, one sales manager (who preferred to remain anonymous) for a $36 million Midwestern web and sheetfed label printer, has never been enrolled in an incentive plan and does not use one at his current company. "They're not needed if your compensation package is done properly," he says. "We pay 100-percent expenses. But incentives can be a good idea because some compensation programs may have ceilings and limitations."
Here are some issues related to sales compensation:
Incentives Based on Technological Expertise
With the advent of sophisticated media technologies and digital printing processes, a well-trained sales force pays for itself. Yet, salespeople often lack the expertise to sell these new services effectively.
"Most salespeople don't have a technology background and can do more harm than good to a customer relationship," notes George Fiel, president and CEO of Image Systems, in Menomonee Falls, WI.
"They can pass on poor information from customer to printer and printer to customer."
Therefore, tying an incentive plan to a salesperson's technical knowledge may help resolve the problem.
"This would be unheard of in the printing industry! But I would be willing to try it," says Harris DeWese, a principal of Radnor, PA-based Compass Capital Partners and a regular columnist in Printing Impressions.
DeWese suggests quantifying and qualifying such a plan. For instance, specific competencies must be demonstrated—through written or oral testing—within a specific time frame. If successful, the salesperson might be given a higher allowance for auto expenses or base compensation.
Volume- or Profit-based Plans? What's Better?
Most print shop owners compensate sales executives based on sales volume, not profitability or "customer retention." Inevitably, this system leads to the chasing of orders that may not fit the company's objectives, but will still fill the salesperson's wallet.
"If we look at the priorities and motivations of a salesperson paid this way as opposed to the motives of the company paying on this basis, there are contradictions," says Sid Chadwick, president of Chadwick Consulting, in Lewisville, NC. With this type of plan, sales reps look to maximize revenues, regardless of long-term margins. The company, in paying this way, appears to want to reduce the cost of sales expense to match its revenue stream. This is a quantitative approach rather than a qualitative approach. "That also may not support loyalty between sales force and ownership/management," he suggests.
Chadwick argues that the traditional compensation system fails to generate value-added services or to ensure a smoother working, long-term customer relationship. But can a printer really argue about increased volume?
"Not only do our salespeople go after volume, but we encourage it," Spear enthuses. Spear's senior management determine if a "fit" exists by completing one or two jobs for the customer, analyzing profitability carefully, and deciding whether or not more jobs can be done efficiently. Some sales personnel, though, disagree with this approach.
"From a company perspective, chasing orders is awful, because salespeople don't have direction," one printer points out. "But I wouldn't blame a salesperson for doing it, because it's how he/she is being managed."
Despite expecting his sales staff to deliver a targeted sales volume, Jeffrey Spear holds only himself responsible for profitability. "Margins of profitability are equal part selling price, selling control and efficient management in the plant. I hold my sales force responsible for volume, but profitability is the responsibility of senior management," he concludes.
Non-compete Agreements
You knew we would get to this sooner or later. How effective is the dreaded non-compete agreement? How fair? Some consultants believe that non-compete agreements are very unfair to the salesperson, but many printers refuse to hire reps without them.
"Non-compete agreements should be reasonable and fair," contends Chadwick. "But if a salesperson already works with a company, a non-compete agreement is very unfair. For a contract to be binding, there must be an exchange, and if the rep is already working for you—there may be no fair exchange of value. A buyer will buy from whomever he wants—a non-compete agreement will not hinder that."
"In many states, non-competes are very difficult to enforce," adds DeWese. "The judge doesn't want to prevent an individual from making a living. It is much easier for a CEO to get an injunction against the printer who has just hired a former salesperson, to keep the person from calling on those accounts."
Chadwick recommends that a printer's management and customer service representatives meet with clients to establish an ongoing relationship. In addition, CEOs should review the customer base, how orders are placed, frequency of contact with existing clients and prospects, and customer attrition. "All elements should be reviewed," he says, "because you can't be an absentee owner and expect to enforce a non-compete agreement."
Visit Your Clients
When you part company with a key salesperson, the individual may take a good portion of your accounts to the next printer. If your soon-to-depart salesperson already guards his/her accounts, valuable business can disappear before your eyes.
George Fiel believes that sales employees can undermine the company's relationship. "Salespeople really protect their relationships with clients and that is harmful to a company's stability, because the company is not holding the golden key," he points out.
"I've always felt that they [departing sales staff] take about half of the business with them," Bray concurs. "Several years ago, a top salesman left and took about 40 percent of his business." Bray reports that his firm faced a "detour" of six or seven months before he could rebuild the lost business.
But it doesn't have to be this way. According to Terry Nagi, of Terry A. Nagi Associates, in Washington, DC, a printer can normally retain 40 percent to 60 percent or more of its business by an immediate visit from the CEO and sales manager.
Spear uses this approach to earn customer loyalty. "That's not to say that a departing salesperson can't take an account to a new employer, but I don't lie awake worrying about that," he notes.
"Our manufacturing capability is what satisfies customer demand; it's not just driven by our sales personalities."
Furthermore, to protect established accounts, visits to customers should be conducted regularly long before a salesperson decides to leave.
Disbanding the Sales Force
About four years ago, George Fiel eliminated his sales force. In its place, he created a full-time quoting/estimating department, as well as an operations department.
As a result, he contends, Image Systems delivers faster turnaround and communicates more detailed and accurate information, as well as continuity, on all of its quotes. "Previously, the salespeople were quoting independently, but they didn't understand the workflow or were either over/under quoting. The relationship needs to be personally integrated from the preflight department all the way to top management."
Fiel believes that a sales force is superfluous to his business since about 55 percent of print orders are received via the Internet or high speed T-1 or ISDN lines.
"With wire transfer, there is no middleman to explain these files. The prime job of a salesperson is to open the door and start a sales dialogue or customer relationship," Fiel explains. "But with the latest technology, the preflight department and CSR department have complete linkage with the customer, not the salesperson," he adds.
On the other hand, Jeff Spear believes that his sales staff possesses enough technological expertise to advise customers effectively. His 100-percent computer-to-plate operation also provides Web/Internet services.
"We also receive orders directly through T-1 lines, but I still believe that a sales force is necessary to assure customer satisfaction," he says.
Fiel does caution that before deciding to scrap your sales force, you should evaluate customers closely. In addition, you need to staff a customer service department with employees who possess sound Mac skills and the ability to communicate organized, detailed information in a fast-paced environment. These individuals in customer service also need to be compensated as well as the industry norm, he says.
DeWese, though somewhat skeptical, approves of Fiel's decision, but not without first establishing a caveat. "If I could grow my business internally by 10 percent (and keep profitability commensurate with that percentage) by having clients communicate their job specs directly to my highly trained CSRs—skipping the salespeople, who are apt to screw up the specs in the first place—then I'm all for it. And I'm the great apostle of salespeople," he admits.
Another important factor to consider is geographic market area. In terms of customer base, cost of operations, competition and demand, there is a huge difference between New York, NY, and Rome, IL.
"I know it [Fiel's strategy] works in Europe," says Bray. "But I don't think it would work in a very competitive area like ours."
Chadwick also argues that since each business maintains different customers, markets and industry position, there are no static parameters for copying Fiel's strategy.
"[Fiel's] approach may be appropriate for his company, but no two firms should have the same strategy, unless they have similar equipment, employees, customers and business plans," warns Chadwick.
Lend Me Your Ears
Not everyone views sales compensation as a viable issue. Some think that the industry should focus on more pressing issues, like margins, quality and cost leadership. According to Spear, printers try to make sales compensation into an issue because they do not want to part with the cost of sales.
Chadwick agrees: "It's more important to look at the profitability of accounts, value-added contributions, the value of a customer in a specific market, seasonality of when work occurs and the regular testing of performance relative to what customers experience," he states.
"If you don't know the trends or have the strategy, how can you build a remuneration plan that supports both employee and customer loyalty?" he asks. Good question. You decide.
—Barbara A. Bucci
