I just came across an ad this morning for a sales director that started this way:

As a Business Development Director with Idea Information Security, you will enjoy a healthy base salary…

The ad is quite long and covers more topics than needed, but the opening line is a bit of a concern. Hiring salespeople who are money-driven is a wise approach (though there are mitigating factors in that approach). The issue with the opening line is that it sounds like a reward for winning the interview process.

This point is subtle, but we have run into it in the past. We prefer to list base salary amounts in the ad, but we usually list it towards the end. The more important information is to describe the position, the traits that lead to success and the expectations of the manager. The fit you are looking for first is ability.

Compensation, obviously a part of the equation, should not be the card you lead with in the first sentence of the ad.

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Retention is on everyone’s mind with the job-hopping world we now live in. I have to admit, if we see a candidate who has been locked in with a company for 10+ years, we start to wonder about their overall development. Today Kevin Wheeler offers an excellent article on the ERE website that deals with strategies to implement to improve employee retention.

Money Won’t Hold Them starts with a quick history lesson on how we got here:

But somewhere in the early 1980s, things began to change. The first crack came with the advent of the 401(k) and (b) plans that freed employees from the corporate retirement programs. The 401 programs are, in effect, portable pensions. In effect, you take your accumulated savings and add to them somewhere else.

The pension fund is toast for we Gen Xers and younger. Workers now freed from a loyalty-inducing pension plan now look for opportunities more freely.

I often hear managers, CEOs, and supervisors promising this and that and making speeches about how committed they are to their workers.

When it comes time to allow workers some say in their work, or the opportunity to transfer to another department, or the chance to try something new, they just as often hesitate. Words can take on many meanings and can be twisted to fit any occasion. Deeds speak for themselves.

We’ve seen that approach all too often. I think he is spot on in that commentary.

Finally, he provides 6 suggestions for improving retention that are must reads. I’ll pull a couple of pieces from the article as a tease:

4. Pay at market rates or more. Don’t think that your benefits or loyalty will keep employees happy. Err on the side of generosity when you offer pay increases and never let pay be an excuse for an employee leaving. Pay is never the real reason people leave a firm, but it sure makes a great excuse for employees. Most organizations can’t defend themselves on this issue because they don’t pay that well.

6. Remember that we have entered a time when the employees are in charge. They can cripple your success and they know exactly how. They own the tools of production, and management needs to understand that the best companies, those that are most financially successful, have employees who enjoy “just enough” management and a lot of freedom. Today’s employees are better educated, more independent, less afraid, more secure, and far more entrepreneurial than those of even 10 years ago. This means that HR policies and management styles have to radically change.

As they say, read the entire thing.

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This CareerJournal.com article can only be categorized as good news – More Employers Are Basing Raises, Bonuses on Results.  Of course, none of this is surprising for salespeople since the vast majority are compensated based on their successful selling.  For other positions, this may be a bit of a surprise:

Employers have turned to tying pay to performance to shore up costs and to try to retain their best workers. “There is a limited amount of money that people have, and they are trying to get a better return on those compensation dollars,” says Steve Gross, Mercer’s global-reward practice leader.

I am a passionate proponent of merit-based pay structures and raises.  I was drawn to sales due to the fact that you could increase your pay by simply performing.  What a fantastic idea!  Of course, the financial guys hit the nail on the head in terms of why companies are drawn to this approach:

For one thing, he says, “companies like to move away from fixed costs to variable costs.”

One caveat we often encounter is financial team members who look at a high-performing salesperson’s commission with a skeptical eye.  This approach is reprehensible to me.  The assumption becomes that the revenue would be coming in whether the salesperson was on the account or not.  That belief then leads to the salesperson being viewed as an expense and their commission plan gets tweaked.

Big mistake.  The salesperson will have their resume on the street that evening.

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The CEO-bashing that has occurred regarding their compensation is a sore spot for me – especially since the criticism is leveled by people who have never spent a single day as a CEO.  Now I catch up to this Foxnews.com story – Oprah Highest-Paid Star; Simon Cowell a Distant Number Two.

Do you know how much Oprah makes per year?

$260 Million.  A year!

Where is the outrage?  If I am not mistaken, Oprah is the CEO of her production company.  This number is her salary – what about her benefits and perks?  The second highest television salary is $215 MILLION less than her salary!  The mainstream media goes to great length to report these figures for CEO’s of publicly-traded companies, but I have a suspicion that they will turn a blind eye to this one.

Personally, I say kudos to Oprah for running a highly successful company and I am glad that the market demand for her allows her to make this type of salary.

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According to Forbes.com’s article Near The Head Of The Salary Class, one of the “surprising” 6 figure jobs is that of a sales representative.  Surprising?  As most of you know, a strong salesperson can easily make 6 figures in most industries.  The main point regarding sales (and many other positions) is that you have to pay your dues.

Nonetheless, Forbes listed this information in their slide show regarding the sales rep position:

Sales representatives, wholesale and manufacturing, except technical and scientific products

Sell goods, for wholesalers or manufacturers, to businesses or groups of individuals. Work requires substantial knowledge of items sold.

Top 10% Wage: $101,030
Median Wage: $49,610
Total No. Of Jobs: 1,488,990

Best-Paying Industry: Other financial investment activities

Top-Paying Metro: Danbury, Ct.

I am surprised that Danbury is the top metro.  I’ve been there a few times but I had no idea.

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Simple thought here for anyone who hires or manages salespeople.  We always recommend reimbursing outside salespeople through mileage as opposed to a monthly allowance. 

Simple psychology here:

Allowance Reimbursement – you are paying the salesperson a set amount of money every month regardless of their travels.  Now the salesperson may look at travel as an expense the dilutes their personal profit margin.  They make more money by traveling less which is anathema to selling.  Yes, it is good to encourage them to be frugal in their travel so they don’t go on a shake-and-howdy bender – better to qualify prospects thoroughly before scheduling a visit. 

I don’t like the subtle reinforcement of limiting their travel (and thereby their prospect visits) in order for them to pocket more money.

Mileage Reimbursement – you are paying the salesperson for every mile they drive.  If they drive more (hopefully visit more prospects and customers), you pay them more.  Yes, they can game the system, but it is simple to verify where the salesperson has been if needed.

I like the subtle reinforcement of encouraging them to see more prospects.

I could be wrong but these are the strong points that resonate with me when we are helping our clients craft a sales compensation plan.  Still, we have clients who prefer the allowance approach.

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I am going to chime in here a bit on the Velvet Hammer’s post from below regarding the 1 week window for making offers to candidates. Last week, Selling Power had an excellent article in their newsletter that contained some great tips. Dan Miller, vice president of Talent Acquisition and Retention at Monster.com made this smart suggestion (my emphasis):

“Don’t just talk about the base salary; talk about the ability the candidates will have to achieve the upside,” says Miller. “Candidates may take a lower offer on the base salary if they feel that they have the tools and opportunities to exceed quota. If you’re trying to build a world-class sales organization, you need to sell growth as a fabric of the culture. Enthusiasm and energy has to come through when you position the job offer.”

We look at things with a sales focus in mind. If you have a sales candidate that is looking for a large base salary or a guarantee, ask yourself why? Do they believe you have accurately portrayed your sales cycle, quota and value proposition?

Sales is the one area in a company where there are no guarantees. There is risk in that if you don’t close deals, you won’t make as much money. Yet the reward has tremendous upside in a large commission check. If a candidate is pushing for a guarantee, you need to address that topic quickly – why is the candidate asking for the guarantee? If it is a reasonable response, I would follow it up by asking what they are willing to give up in exchange for it.

Here are the things that the article suggested the offer letter should include. They are not in any specific order and I have added my take to some of the items.

• Position and job description – For sales I would recommend that you lay out your expectations and include milestones for the first 90-180 days and their first year’s sales quota.
• Location and working hours
• Base salary – You must include your commission schedule also. I would even recommend that you include a spreadsheet of the expected commission according to their quota. One other critical item – you must define when the commission is earned (at billing, at shipping, at payment received).
• Benefits – include a copy of you benefits statement. This topic has become a very important area for any new hire due to the escalating costs of healthcare. Be as specific as possible – who is the provider, when are they eligible for the benefit, how much it will cost, etc.
• Start date
• Information, documents that are needed on the first day of work
• Contingencies (reference check, start date) – If you tender the offer prior to references and a background check, make sure that the offer is contingent upon satisfactory completion of these steps.
• Last, include a date by which the applicant must respond to your job offer so you can move on to the next candidate if he or she doesn’t accept. As the Hammer always says, “It never takes them longer to say YES.” Often if they can’t give you an answer within 48 hours, they are using your offer to get a better deal with their present employer or leveraging your offer against another offer.

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There is a subtle psychology to working with sales candidates in a hiring process when you get to the offer stage. The ideal time frame for an offer is approximately one week after the final interview. This 1 week window provides enough time for both sides to contemplate the position and the salesperson’s fit to it.

Now understand, I’m talking about a hiring process where a phone screen, assessment and multiple interviews have occurred. This candidate has been fully vetted and found to be a strong fit to the position’s requirements.

Unfortunately, we have seen a couple of clients work past this ideal window into an extended time period after the final interview. This delay has led to more difficult negotiations with the candidates whom have taken more demanding positions.

Here’s what happens when you extend this offer window:

Candidate Doubt
The candidate may start to think they are not the right fit for the position since all the momentum of the hiring process reaches a climax and then stalls. Most of us have experienced this doubt. The process goes well and an offer is expected yet a week goes by with nothing.

A strong sales candidate typically follows up to qualify the time frame. Often, they receive an ambiguous response. Since candidates are typically adapting to a highly compliant nature, they won’t push too hard on qualifying this information. And yet the wait can continue for another week or worse.

A secondary doubt can develop in which the candidate now starts questioning the company’s bureaucracy. If it takes this long to make a hiring decision, what is going to happen when I am closing a large new prospect? Can the company support my skills? These are legitimate questions that creep into the candidate’s decision process.

Candidate Confidence
The other negative consequence is you create an overly confident candidate. The candidate knows they did well in the hiring process and now they are gaining confidence that they are the only option. Why wouldn’t they think this? It has been weeks since the interview and now a negotiation is being initiated.

An overconfident candidate can be problematic in that they greatly overestimate their value in the negotiation. This is never good. Their thought that they are the only option may or may not be accurate, but it doesn’t matter. Their perception of scarcity of viable candidates drives their desires.

If you contact them within the 1 week window, the top candidate must consider the fact that other candidates are still available. The interviews were recent enough that other candidates are vying for the opportunity. If the top candidate gets too confident, the hiring company may enter into negotiations with the secondary candidate. This is valuable leverage in a negotiation.

There is always the possibility to successfully hire a new salesperson outside of this window and we have been successful at it in the past. However, this time frame is ideal for adding a highly skilled, successful salesperson to your existing team.

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The Pioneer Press offers up an utterly worthless piece of agenda journalism regarding CEO pay.  At the risk of upsetting the Red Bird, I have pulled some quotes from You’re fired! Take these millions and go (all my emphasis):

If 3M ever fires George Buckley, one of Minnesota’s highest-paid CEOs, there is one detail Buckley won’t have to sweat: health insurance.

The Maplewood-based manufacturer will kindly pick up much of the tab for Buckley’s health care for two years as part of the $38 million goodbye he’ll get on the way out the door. (ed. – we learn later in the article that this “supersized pay” health care equals $28,430)

Buckley’s potential exit payout, with its health-insurance perk, is just one of hundreds of potential multimillion-dollar termination treasures detailed to the dollar for the first time in this spring’s revealing crop of corporate proxy statements.

Expect some “holy cow!” moments to rattle a few company boards. The numbers are expected to stoke activism to stop rewarding poor performance with supersized exit pay. (ed. – I think this writer is attempting to stoke it herself since she does not provide a single shred of evidence revealing “poor performance” amongst her CEO examples.)

Still, they are a keen reminder of just how CEO’s aren’t like the rest of us.

Hodgson said he thinks one year’s salary plus bonus “is quite sufficient” for severance to play its role as a “small insurance policy.”  (ed. – how about letting the market determine what “is quite sufficient?”)

I realize newspapers are disintegrating right before our eyes so apparently editors are absent.  How else do you explain this intern-level business writing making it to print?

This article “reveals” pay packages for 9 other local CEOs.  The spin is simple – the writer’s focus is on their health benefits that are miniscule compared to the overall comp package.  I suspect her goal is to anger the “common laborers” who are paying for ever-increasing healthcare insurance.

The writer does not make a single reference to overall stock performance during any of the CEO’s tenures.  Completely pathetic, in my opinion.  Overall corporate performance and shareholder value must be included to provide the proper context to this discussion.

Ours is a free-market economy that self-corrects over time if something is misaligned.  I would argue that these CEO compensations are generally not misaligned.  Price and wage controls stifle freedom, inject government control where it should not be and ultimately can lead to totalitarianism.

See Hugo Chavez.

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Yesterday I posted on communication blindness.  Today, I stumbled upon CareerJournal.com’s Can a Business Be Run As a Corporate Democracy?  A stunning thought that I have never considered.  Yet, I suspect Gen Y has some ideals that favor this approach.

Ternary runs itself as a democracy, and every decision must be unanimous. Any of Ternary’s 13 other employees could have challenged the incentive decision and forced it to be revisited.

Running a company democratically sounds like a recipe for anarchy, and it can prompt bureaucratic whiplash: Ternary, a company with annual revenues of around $2 million, adjusted salaries for employees up and down several times last year.

At first blush, this approach seems as if there is too much communication, too much anarchy and not enough command-and-control structure.  We’ve never encountered a company that incorporates this management approach.

The article references some skepticism for this approach also:

Harry Katz, dean of Cornell University’s School of Industrial and Labor Relations, doubts a system like Ternary’s could work on a large scale. In bigger companies, “there’s an inevitable conflict of interest between managers and employees,” Mr. Katz says. General Motors Corp.’s Saturn plant in Spring Hill, Tenn., for instance, experimented with giving employees a strong voice in management, but later moved back to a more-traditional structure, he says.

However, it is quite a testament to communication, isn’t it?  Well, I was hooked until I got to this section of the article (my emphasis):

The repeated changes to Ternary’s pay scale last year demonstrate employee empowerment in action. The company shares financial data, including everyone’s salary, with all employees. In 2005, Bill Schofield proposed cutting the salaries of senior programmers, including his own, by 15%, and boosting compensation for junior programmers. The council agreed.

Then, last summer, Ternary ran into a cash crunch because some customers weren’t paying their bills on time. The strategy council slashed salaries by 22%. That rattled Chad Wolfe, a 29-year-old Canadian programmer who told his representative on the strategy team that he would have trouble paying his personal bills. So the team devised no-interest loans for needy employees.

That’s it for me.  As a Utilitarian I would fail wildly in this company.  However, if we were helping them to hire more team members, we would certainly stress the Social motivation in all hires.

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