Realize Your Peak Potential
December 8, 2015
In a recent article in Forbes Magazine, John Shoven, economist and director of the Stanford Institute for Economic Policy Research, wrote, “We need to strengthen pay for performance and weaken pay for seniority.” Shoven believes companies that have adopted and continue to adhere to traditional, seniority-based compensation plans, have a “warped incentive” to encourage their older, higher-paid workforce to leave the company in order to make room for younger, less-tenured employees.
Ziad Y. Khoury, founder of The Khoury Group and author of Frontline Profit Machine, couldn’t agree more. In his new book, Khoury describes a business blueprint that promotes the adoption of a performance management system and three areas of actionable focus; the Right Environment, the Right Fit, and the Right Action. These three elements are interdependent parts of the Khoury Performance Equation, or KPE.
The Right Environment describes the eight essential elements necessary to put a positive, service-based sales culture in place. The Right Fit, or recruitment part of the formula, ensures the right people are in place. The Right Action refers to best practice standards, a comprehensive training process, clearly defined performance metrics, and workplace motivation.
Workplace motivation is a key consideration when establishing an effective performance management system and demands ongoing focus on three related human drivers and desires: compensation, recognition and accountability. Although each is important to creating and maintaining workplace motivation, let’s specifically address compensation and its role in building a performance management system that can help your company achieve peak performance potential.
Most salespeople are motivated by money. There is no shame in this. In fact, if you don’t have someone on your sales team who wants to make more money, chances are, you have the wrong person. Therefore, your primary objective should be to create a monetary incentive that is more than the occasional nice-to-have paycheck; you need a must-have monetary incentive.
The key metric when developing a performance management system is not what you pay; it is instead, the sales revenue generated by your employees and what you end up keeping as company profit. Here are a few basics to remember when creating an effective, performance-based compensation plan:
- Base pay should not exceed 50% of total compensation – base pay provides the ability to pay for basic necessities of survival, with the balance (commission) accounting for a desired increased standard of living.
- Keep it simple – if a salesperson cannot calculate their current commission earnings in five minutes or less, it is too complex.
- Tier it but make it attainable – the right plan needs to be realistic and based on a sliding scale that translates into more money as performance increases.
- Be generous – Your top producers are worth it. Pay them well or they will be producing for someone else, maybe the competition! Remember, it’s not how much they make; it’s how much they make for you that really matters.
A strong, successful performance management system requires many key components. According to Khoury’s handbook on maximizing your team’s performance, Frontline Profit Machine, it begins with creating the Right Environment so you can attract, and retain the Right Fit, and it all comes together when you implement the Right Action. In a service-based sales environment, survival depends on the accomplishments of your frontline personnel. The old seniority-based pay plans are antiquated and will not deliver the results you need to stay competitive and profitable in today’s economy. By implementing a performance management system that rewards your top producers and inspires others to do better, you will better position your business for sales success.