About a week ago, I commented on a post at David Maister’s site related to sales commissions. Both David M and David Kirk asked for a bit more explanation of my comment. (This is not uncommon since I can be unclear more often than not!)

This is a copy of the original comment post:

I see different compensation schedules at each of my clients. They hire me to help them figure out the best method. Some believe there is a “golden rule” for how people should be commissioned. 

Every company, and sometimes department, needs a system that works for all the players involved in growing the business (business developers, outside sales people and some inside sales), maintaining the business (inside sales, service, and project technicians), and managing the business (administration). 

In all the years I’ve done this, I’ve never created one system that is a clone of any other. Personal and group culture and the company direction are the strongest factors involved in my work. 

The rest of this post is about general compensation. The next post will be sales-specific.

There are a few questions I ask when handling compensation:

1. “What am you trying to achieve?” Business owners may want to be the next Microsoft or they may just want a comfortable lifestyle business. Whatever is desired must be clearly stated and measurable in order to build a business around the desire(s). Are you trying to grow quickly and sell the business? Are you trying to lower client attrition by 10% this over the next 2-3 years? What is our strategic plan for the business? Always find out the timeframe with the desire, too.
2. “Who will help you achieve the desire(s)?” For the purpose of this article, let’s just consider people internal to the company. Typically, this is at least one sales person, a technical or delivery person, and some administration. Depending on the size of the business, this could be a team of people (General Mills requires hundreds of people to put cereal on grocery shelves) or just a few (look at our thousands of understaffed small businesses where everyone wears many hats).
3. “How will you communicate my desire(s) to these people in a way that creates incentive to help you reach the desires?” If I started a business tomorrow and told the staff my goals for the company are to get a million dollar house, a yacht, and fund a Hollywood movie, I doubt I’d see peak performance from them. However, if I let them know I’d like to grow the business to $20MM in revenue with a 10% net profit and a 5% profit sharing plan of which they are entitled to, then my result might be slightly different. (So far, we’re just dealing with the cash aspects of compensation and company mission.)
4. “How is each person on the staff compensated for his effort and for going above and beyond?” I start with this question to learn two things: a. how are people comp’d now and b. is everyone entitled to recognizable comp for being a superstar?
5. “Does each person have a piece of short and long term results?” This is key. Many businesses offer a salary, a year end bonus option, and “standard benefits”. Talk about boring the heck out of someone. Everyone should have a shot at short term compensation bumps (like a commission) and long term benefits related to the performance of the company (stock options, profit sharing, etc).
6. “Is the compensation plan clearly understood and achievable?” Everyone should be able to measure his progress and see/hear others who have achieved success with the same or similar plan. This is critical to buy in.
7. “What non-monetary compensation is available?” We need cash to pay bills and plan for retirement. We need more than this though. For some people, its recognition, for other ongoing training, and so forth. Personally, I love it when a manager and direct report come up with something together on a quarterly or annual basis such as “a five day trip to Mexico” or “extra time off to help rebuild New Orleans”.
8. “What is the risk to the company and staff is we a. exceed our projections, b. horribly miss our projections, or c. achieve our projections?” Compensation plans are wonderful when a business is being planned. They make sense then. What happens if your annual revenue plan was $15MM and you achieved $30MM or only $5MM? Is anyone grossly over or underpaid? Is the payment justified or easily understood?
9. “How often will we review the compensation plan?” This is important to do annually with new companies and every few years with established firms.
10. “Will you allow exceptions?” Does a recognized expert in your field who just accepted a position with you get a deal outside the normal compensation plan? Typically, they do. This is easy. But, what about the new hire who wants to work from him two days a week when others in the same employee classification do not have this luxury? How you handle these exceptions is key in maintaining morale.
11. “Are you paying for results or time?” I hope the answer is the former, but too often, I see its the latter. Changing company culture so the focus is on results is much easier when all staff have the benefit of short and long term compensation bumps. Otherwise, you could be hiring people who just need a job.

These are the questions I ask of managers and business owners when I’m engaged to review a compensation plan. My next post will be about sales commissions for staff.

Ever read something that has a profound effect on your thinking? I’ve almost finished Happiness: A Guide to Developing Life’s Most Important Skill, by Mattieu Ricard and it is a must-read book.

Ricard is a Buddhist monk, but the book is not about Buddhism. It is about defining what happiness is, why we struggle with it so much, and what to do about it. He blends his personal experiences with scientific data.

In my own life experiences, I’ve found false happiness and true happiness. We all want things and everyone is familiar with the “you’ll never have enough” cliche. Ricard dives into these concepts and dissects them to help one understand true happiness.

There is no step by step guide to determining what you should do to achieve true happiness. The book gives you plenty of things to contemplate and advice on how to start though.

After reading this book, I plan to buy his others. For those of you who travel quite a bit, its a “read and return” book found in the Paradies shops in various airports. I won’t return this one though.

There are reports on IT every day. Boring, dead reports. Here’s one everyone should read. After reading it, decide how much you are willing to do to grow.

In the December 2006 edition of CIO, an article from CIO and the MIT CISR covered the stages of enterprise architecture. Essentially, organizations go through stages of IT maturity.

Don’t miss this table.

When reading the article, please keep in mind most companies stop at Stage 2 (Standardized Technology) and one can be in multiple stages at once if there are multiple divisions of an organization.

Moving from Stage 2 to Stage 3 (Standardized Processes) is very tough. This is why most firms do not ever move out of Stage 2. Its easy to look at the budget and think, “What can we cut or what can stay the same as last year?” It requires minimal thinking and nothing extravagant.

When one desires to standardize processes (Stage 3), multiple areas of an organization are called into play. People must change the way they work, coordinate terms and understand what they do every day. All of the knowledge contained in brains has to be committed to paper (or electrons) so process planning can occur.

Process planning is the work that causes stress. People from different departments write down how they think the total process works and are shocked to find out the process is wrong or inefficient. Positions may be eliminated and created, too. Wouldn’t it be easier to keep on keepin’ on?