From Foxnews.com’s How to Deal With the Salary-Expectations Question:

Don Sutaria, president and founder of CareerQuest, a staffing and training firm, advises job seekers to avoid offering a solid figure. “Don’t answer the question. Say, ‘I’ll expect the fair market value. Make me an offer and we can discuss it.’ Or, ‘Maybe you can tell me what your range is?’”

Sutaria adds that the best approach is to arm yourself with information. “It’s very easy to find now, based on the job title and industry, what your range is.”

This is a pet peeve of mine. I don’t think candidates get anywhere by being coy about their salary expectations. Candidates should know what the going range is for the position and it is wise for the hiring company to include compensation range in their ad.

We deal with salespeople so we have a bit of a myopic view, but the salary question is really a qualifying question. We look for salespeople who can qualify money, i.e. compensation, effectively. I would expect a strong salesperson to have qualified the compensation before going this far into the hiring process.

As a hiring company, it is wise to put the information out there. Watch how the salesperson handles it. See if they attempt to secure more compensation (nothing wrong with that approach). You should not bring in candidates without having a basic outline of their compensation expectations.

Basically, don’t let the money topic turn into a cat-and-mouse game between the candidate and the hiring manager.

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From the Pioneer Press’ Buffett too hard on director pay:

The media, he says, have scrutinized “CEOs who have received astronomical compensation for mediocre results.” At Berkshire Hathaway Inc., where the famously successful investor has long been chairman, things are different. Pay can be high, but only when there are results.

“When we use incentives €” and these can be large €” they are always tied to the operating results for which a given CEO has authority,” Buffett wrote in his annual letter to shareholders, released Thursday.

We’ve posted on CEO compensation before (here, here and here) since it is a topic at the forefront of today’s business news.  Warren Buffett takes the right approach to the CEO compensation package in that he ties it to results (similar to a sales commission structure).

He mentions something for which I was not familiar:

But there’s one area where Buffett seems not to believe in pay for strong performance, an area where he seems to think any significant compensation can be corrupting. That area is compensation for independent directors.

“Many directors who are now deemed independent by various authorities and observers are far from that, relying heavily as they do on directors’ fees to maintain their standard of living,” Buffett wrote. “These payments, which come in many forms, often range between $150,000 and $250,000 annually.”

Buffett is obviously a smart businessman and he seems to be on the right path here.  The incentive for these independent directors is not aligned with bringing maximum shareholder value.  You would think the media would be interested in this storyline as opposed to just carping about CEO compensation.

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From Managesmarter.com’s Crystal Clear Communication:

To hear Scott Glatstein tell it, as much as three quarters of American companies “do not broadly communicate their sales strategy” to their sales teams. The result, not surprisingly, is a breakdown in the sales process.

Aligning the sales compensation plan with the desired business outcome is a critical component of sales management.  One constant with salespeople – they will work the compensation plan to maximize their reward.  The article contains a great example:

One giant food company Glatstein worked with had lost $20 million in a year because of out-of-date products. The solution from corporate executives was to motivate sellers to avoid food spoilage by pinning 40 percent of their bonuses on keeping food fresh. But that tactic compensated salespeople for a market condition, not their work. The result? The reps sold less product to make sure no food spoiled on the shelves, and the company’s revenue dropped 20 percent in the first four months after the plan was initiated.

Ouch – talk about misaligning your comp plan with your business goals.  In a previous sales management role, I worked with an older plant manager who helped me out immensely.  One of the nuggets of wisdom he shared with me – whenever he had a new job come into the shop, he put his laziest machinist on it.  I asked him why and he told me that the lazy machinist would find the most efficient process for making the part (he wanted to do the least amount of work).

It would appear the salespeople in the above example made the most beneficial adjustment for the revised comp plan.  You can’t blame them, they simply reacted to the reward structure that was placed before them.  Select Metrix will be expanding our service offering soon to assist you in this endeavor.  Look for more news about this topic in the next few weeks.

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From MarketingProfs.com’s Marketing Challenge: Gross Sales vs. Gross Profit:

Our star salesman is the best closer I’ve ever seen. He sells products and services. He’s paid a salary plus commission on gross sales. He does have some pricing latitude. I’ve noticed a fairly stable gross profit percentage on products, but it’s much different on service sales.

It looks like he’s “giving away” services to get more product sales. Service costs are somewhat vague and hard to accurately measure, but I need to grow the service side of our business profitably.

Should I switch his commission structure to a gross profit percentage on services?

In a word, yes. Gross profit is the most effective structure for sales commission plans. The hiccup is determining costs and their is a pitfall to avoid. If you have variable costs based on production or service delivery, it is best to establish an estimated cost for each sale.

Here is the issue – I worked for a LAN cabling company where I was paid on the gross margin of my deals. I designed the solutions, quoted the project and closed the deal. The problem was that some of the installers were quite liberal with their material usage. That is putting it nicely – one guy was assigning material costs to my job while moonlighting installations using that material. I didn’t know this at the time, I simply knew that the installation I had designed had plenty of extra material built into it.

My commission was crushed on a handful of big deals and slowly dissolved on smaller deals. The President finally stepped in after I toured a few job sites with the lead engineer and measured the amount of cable installed (well under the amount listed on the job completion sheet). Needless to say, I have never forgotten this issue.

This suggestion sums it up (emphasis mine):

Gross margin is the way to go. The trick is to define the cost of goods to drive the correct behavior that yields profit on the bottom line. The calculation to get this right requires a clear understanding of the end-to-end process that delivers the “product,” whether it is goods or services.

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Salary.com put this article out earlier this month. It is a lengthy article written to employees in regards to 2007 areas of compensation, but there are some points to keep in mind not only as you are hiring staff this year but in retaining your current team. These points are complementary to one of our earlier posts on the top reasons why candidates take a job.

If you haven’t read this post, let me highlight the top 4 things candidates are looking for in jobs: A good manager/boss, opportunity to advance, opportunities to learn/grow and balance between work and personal life. Salary.com’s article aligns with 3 of the 4 points from that post. If you are not already doing these things, may I suggest that you start thinking how you can incorporate them into your hiring practice this year?

The first trend they see is the increase in performance-based bonuses. Salaries will not increase significantly this year as the market continues to tighten but bonuses based for performance will.

In the area of advancement, they are seeing leadership development no longer being just an executive perk. Instead, leadership training will be provided to the middle manager giving him or her the ability to develop the additional skills needed to advance.

Another trend is that external and internal training programs are on the rise. This approach gives employees the opportunity to learn and grow within the company. Our economy is a knowledge-based one and without these training programs, companies will no longer be able to be competitive in their market.

Finally, one trend is the ability to work a more flexible schedule or to work entirely from home. With the technological advances – VoIP’s, VPN’s, PDA’s – and all the other acronyms can give your employees the same abilities as if they were sitting in your office.

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I am all for people making as much as they can in their careers which is why I do not understand the emotional attachment to CEO pay. If those CEOs can make that kind of money, more power to them. It doesn’t bother me that Bob Nardelli made big money at Home Depot – good for him. If I could make that type of money I would.

Now you know where I stand, check out this article from American.com – Why Do We Underpay Our Best CEOs? That’s right – “underpay.” The article is a thorough explanation of the trends occurring in CEO hiring due to the national witch hunt for CEO pay.

In fact, there’s strong evidence that, far from being paid too much, many CEOs are paid too little. Not only do the top managers of multibillion-dollar corporations earn less than basketball players (LeBron James of the Cleveland Cavaliers makes $26 million), they are also outpaced in compensation by financial impresarios at hedge funds, private equity firms, and investment banks. Should we care? Yes. If other positions pay far more, then the best and the brightest minds will be drawn away from running major businesses to pursuits that may not be as socially useful – if not to the basketball court, then to money management.

There is a trend amongst CEO hires that has been afoot for some time.

They start with the observation that big businesses in recent years have been hiring more outsiders – that is, CEOs who don’t work for the company that is bringing them on, or even in the same industry.
…
General managerial skills like finance, marketing, and strategy are increasingly more important than firm-specific skills, such as understanding the drug pipeline of a pharmaceutical company or knowing how to negotiate with a steel company’s suppliers, unions, and big customers. In the 1970s, outside hires accounted for 15 percent of all new CEOs; in the 1980s, there was a small increase to 17 percent; and in the 1990s, a larger jump to 27 percent.

Corporations are hiring based on skills and talents of the CEO as opposed to pedigree or experience. This approach is consistent with our hiring process too. Today’s market requires a broad range of abilities as opposed to internal or industry-specific experiences.

As markets grow increasingly globalized and information – thanks to the Internet – becomes more accessible, it’s not hard to see why boards of directors are going outside their companies and industries to find CEOs.

Finally, the one piece of information that has always captured my attention regarding people who are upset over CEO compensation:

An able leader has an enormous impact on the success of a business. Certainly, some excessive corporate pay packages are outrageous, as Bogle and other critics claim. But even more outrageous is a system where Dr. Phil makes more than twice as much as Jeffrey Immelt, CEO of GE, the world’s most valuable company; where Jessica Simpson makes more than the average earned by the CEOs of America’s 500 largest corporations; and where hedge fund managers who make the right bet on the yen-dollar relationship can take home ten times as much as the head of the nation’s largest exporter.

Again, I’m all for Dr. Phil making as much as he can in the marketplace. But where is the outcry over his compensation? Or LeBron James? Some CEO packages are excessive but the market corrects them over time. A strong CEO brings a tremendous return on investment that average investors like myself can be a part of by owning stock in that company. That income possibility, to me, is far more interesting than watching LeBron James make $26 million a year.

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Andersen Corp. (window makers) is a well-known employer up here in the Twin Cities whose business has slowed down greatly with the housing slow down. Nonetheless, the company is still issuing profit sharing checks for all of its eligible employees (22% of their salaries!). The part that caught my eye:

Andersen announced in early December that it was cutting 400 manufacturing positions at its Bayport plant and an additional 40 at a plant in Menomonie, Wis. The company cited a dramatic downturn in housing construction as the reason for the job eliminations. Those workers’ last day on the job was Jan. 2.

In that same December announcement, Andersen officials said that the employees losing their jobs would still get their profit-sharing checks for 2006.

Good for Andersen – that is the right way to do it. Unfortunately, I think there are many companies that would not be so exemplary in their approach.

I’m reminded of a different example. A salesperson friend of mine worked for a family-owned and run company for 8 years with a profit-sharing plan. Despite increasing revenue in those years, the non-family employees only received a single, small profit-sharing check one year out of the 8 he worked there. Strangely, each improving year saw increased expenses . . . expenses that were never explained nor revealed to the employees.

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We’re working through some sales candidate sourcing activities this week for some new customers and uncovering some strong salespeople. There are many reasons why we incorporate a screening step in our recruiting process, but one of the most important reasons is the questions posed by the candidates.

A crucial component of selling is asking the right questions. I laugh as I write this because a saying my father uses came to my mind – “If you want a better answer, ask a better question.” The question content, the question pattern and the follow-up questions are all highly revealing of the quality of sales candidate.

A real-life example from one candidate this week:

What markets do they pursue and where are they positioned in those markets?

Why this company vs. the other competitors in their market?

What niches/verticals are they looking to expand into?

Why is this position open?

What abilities are needed to be successful in this position?

What are the benchmarks for success in this position (including timeframe)?

Some of these questions were offered up by him during an initial email dialogue and the rest on a subsequent phone screen. You can see that he is qualifying the position, the market and the company. Remember the context – we are questioning him on specific topics and his experience in a somewhat stressful situation (for him). There are few moments for him to ask his questions while we are controlling the discussion topics. This type of questioning ability is usually indicative of sales skills that will be every bit as strong.

(We assessed him later and indeed his sales skills were extremely strong)

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I’m a little late to the party on this post from Spherion’s The Big Time blog. The post covers many interesting topics. To start (emphasis mine):

• 23 percent of companies are already dissatisfied with the talent available.
• One-third of HR managers mention turnover/retention as a key concern.
• On average, employers expect 14 percent of their workforce to leave within the next year.
• 31 percent of workers believe there is a turnover or retention problem at their company, and 39 percent of workers themselves expect to leave in the next year.
• Less than half (44 percent) of workers believe their company is taking steps to retain its employees.

You can see where these survey results are leading – there is a disconnect between the employer’s perception and the employee’s perception of the same company. That disconnect is illustrated in the next section of the post involving the drivers of retention. The summary from the post:

Employers and employees wholeheartedly disagree on what drives retention. In fact, employers and employees ranked every factor of retention differently in terms of priority. The most concerning of which relates to time and flexibility. Work/life balance was the most important career priority for 86 percent of workers surveyed. It is ranked first on the employees list of retention drivers after standard priorities salary and benefits. Employers on the other hand ranked time & flexibility last among all factors relating to retention of employees.

A key point to all of these stats is simple – if you have a retention problem, you have a recruiting problem. Strong companies hire the right people that are rewarded by the culture. Any misalignment in the retention factors leads to a turnover problem.

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Full disclosure – I’m no economist. You wouldn’t have to know me long to realize that fact. However, our local Pioneer Press offers a quick read business article with a potpourri of short articles – Labor could reap rewards of political shifts.

From the 1st story:

Political shifts in the U.S., Europe and Asia increase the chances that 2007 will bring labor higher pay and stronger job protection after five years in which its share of economic gains fell….Wages in the dozen nations sharing the euro barely shifted last year even as the region, which expanded last week to include Slovenia, enjoyed its strongest growth in six years. “Economic data is so good that employees must have a share in the success they’ve helped to bring about,” says Juergen Peters, head of IG Metall, Germany’s largest labor union.

And the next story in the same article:

Employers are spending much more on employee benefits than they used to.A study released Wednesday by the nonprofit Employee Benefit Research Institute in Washington, D.C., found that of the $7 trillion employers spent on workers in 2005, 80.6 percent went to wages and salaries and 19.4 percent went to benefits.

In 1960, wages and salaries accounted for about 92 percent of employer spending for total compensation, EBRI said.

I wonder if Mr. Peters (from the first story) has taken an account of the exploding healthcare costs that businesses are absorbing for their “workers.” I guess the pay-for-performance model is thoroughly engrained in my psyche. I don’t see unions being eager to take a significant pay cut when the company is struggling. Funny that the editor chose to sequence the two stories this way. Perhaps it was an oversight? Or perhaps not. Either way, the article does close with a humorous story:

Sharper Image said its recently departed founder and CEO Richard Thalheimer agreed to pay the company $10,000 to keep two of his office decorations sculptures of Superman and “Star Wars” character C-3PO. The specialty retailer said all future management hires would be done under a strict policy of “no mega-dorks.”

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