How to Create a Pay Structure That Promotes Team and Company Growth
In July, Microsoft announced a reorganization of its sales teams into a “commercial and consumer model.” It was a move designed to hone in on new business, customer success and other growth opportunities, and a move in which commercial sales would now focus on two customer segments: 1) enterprise; and 2) its small, medium and corporate segments.
The shift signalled that traditional hierarchal organizational structures are, for the most part, ill-equipped to meet the challenges of today. And though 89 percent of corporations would tend to agree, according to a Deloitte Insights study, only a small number are doing anything about it.
By redesigning your own organization to a more team-centric structure, you can create an environment that’s more adaptable, agile and responsive to the dynamic needs of not just consumers, but also the modern workforce. Here are some factors to consider:
The compensation conundrum
With any sort of organizational restructuring, questions about compensation naturally arise. After all, a well-defined compensation structure is critical to the strength of any team: If it matches the needs of employees and reflects their efforts and successes, it can incentivize growth.
In terms of what kind of compensation works, a salary model is best suited for specialized employees, while the commission model is ideal for sales agents. Each comes with its own drawbacks: Salaried workers get a base pay no matter what but can become complacent, while commissioned teams have less reliable income streams but allow the company less control over the customer experience.
A hybrid model entails a salary mixed with a bonus, or a salary that transitions to commission. Again, this is ideal for sales teams and allows them to strike a balance between controlling the customer experience and inspiring growth in employees. Hybrid employees get paid regardless of whether a sale is closed, which can limit growth opportunities when compared with team members wholly reliant on commission.
Building something that lasts
No matter which compensation approach you choose, it’s essential to keep the following in mind:
1. Pay by commission whenever possible. Commission is the most straightforward way to encourage salespeople to sell because their growth parallels the company’s growth. What’s more, your company gets the added benefit of financial flexibility. You don’t pay unless money is coming through the door. For example, Fishbowl extended its commission structure to all its employees, and the result was 60 percent growth each year for six years.
From our niche in the real estate industry, which is no stranger to compensation structures, we operate in a sales-centric environment, forcing us to refine how we compensate brokers and agents. And, with many of these agents now forming their own teams -- an important real estate trend described in our company's 2017 Swanepoel Trends Report -- pay structures continue to evolve.
Use commission as a carrot you can dangle in front of team members. Set monthly, quarterly or yearly goals, and reward those who meet or exceed them. This gives workers the kick they need to be their best, which serves the company better in the long run.
2. Establish growth opportunities. Whether they are earning a salary, commission or some combination of the two, your employees should feel there’s a path toward growth. Structure commission splits to scale as team members increase their transactions; and make sure your pay is commensurate with their effort and risk -- without caps and ratcheting quotas.
During its early years, HubSpot paid its sales team a base salary and $2 up front for every $1 of recurring monthly revenue, but with a caveat: a four-month clawback. If a customer left within the first four months, that salesperson would pay back the commission.
Good sales agents are good negotiators. So, don’t make decisions about commission splits without understanding how they’ll affect your bottom-line profits. Your side of the split should account for your expenses and protect your business in a down market.
3. Simplify compensation structures. Commissioned staff members should understand exactly how their actions lead to success. So, while your payment structure should be simple and well-defined, that doesn’t mean your team members should feel that their pay won’t cover their expenses.
A study by the Wharton School of Business suggested that paying more than minimum can increase productivity and longevity within an organization. And don’t forget that bonuses can be more than monetary: Workers may respond well to free vacations, home services and durable goods. Spell out the kinds of compensation models available to them, and explain which ones make sense for them. This will give employees a guide to attaining the growth they want.
4. Create a healthy culture. When you encourage learning and transparency within the team, your employees will be more likely to work together to grow and deliver higher levels of customer support. This is a form of internal marketing -- a constant reminder of how the team contributes to individual success.
Take Canadian plane and train manufacturer Bombardier, for example. On the heels of having received more than $1 billion in government aid yet also having imposed two rounds of layoffs, the company chose to increase six executives' pay by up to 50 percent. No surprise that that resulted in quite the internal backlash.
The company's executive chairman, as a result, requested that his compensation be reset to its pre-raise level. So, the lesson here is that, if -- unlike Bombardier -- you design a good compensation structure and are up-front about its workings, you'll often see a positive impact on your internal culture and the public perception of your company.
Overall, many methods exist for compensating your team, and one size never fits all. But, by understanding your options, you can strike a balance between team member satisfaction and your organization’s overall health and growth.