blog
Stabilizing Sales Compensation
In the midst of tumultuous markets, and with substantial profit declines looming, our mid-October survey of firms' strategic and compensation-related plans for 2009 revealed some promising news on the distribution front.
(One quick caveat: this is definitely a fluid situation. Recent news from public firms has not been so positive. So, we expect this snapshot to move with the markets in the months to come. We'll keep you posted. Now back to the program.)
Consider:
- 85% of firms have ruled out near-term reductions in wholesaling staff.
- 31% of firms are looking at creating or adding to hybrid wholesaling teams in 2009. (And yes, we have and will continue to Hammer on the advantages of hybrids. Capital H.)
- Firms are considering an array of options - more, less, bigger, smaller, channelized, dechannelized - to optimize sales territories.
Volatility, both in the market and distributor landscape, provides firms with both uncertainty and the opportunity to introduce long-term strategic initiatives. It is these initiatives that will lead to success during any prolonged downturn and the eventual rebound.
There is similar movement when it comes to sales compensation models. For example:
- Approximately 75% of firms envision flat to higher compensation levels across Sales and National Accounts in 2009.
- 23% of firms are looking at adding a net sales element to wholesaler pay.
- 31% and 38% are considering increases to wholesaler base salaries (by 10-15%) and discretionary bonuses (by 5-20%), respectively.
Again, this is promising, though still not enough. As I have noted before, compensation models in our industry too often do not pass logical muster. The extensive reliance on gross sales means that rewards vacillate much more wildly than actual wholesaler performance.
The wholesalers who were great in January are still great in October despite the 50%+ decreases (in some cases) in their monthly paychecks.
I think we'll continue to see firms enhance the stability of their compensation models. Specifically, this means significantly higher fixed elements - base salaries and relative bonuses derived from the strategic objectives of the firms - and less reliance on the volatile nature of sales.
Such an approach:
- Limits the drastic swing in wholesaler pay from year to year, whereby firms need to pull back in great years and play defense to avoid turnover in bad ones.
- Reduces the importance of paying wholesalers based on the sales delivered by the advisors they actually engage, something few firms do today.
- Acknowledges that wholesalers are vital but not the singular driver of sales thanks to the proliferation of other resources - the Web, research analysts - that outfit advisors with firm and product information, not to mention the finicky beast of market psychology that hangs over us all.
- Increases efficiency by limiting the amount of time/resources that will need to be invested in managing the nuances of compensation plans year after year.
The work we're doing with our clients now is designed to stabilize compensation not just for 2009 but for all of the years like 2008 that lie ahead. I, for one, am hoping that more firms look to do the same.