This podcast explores compensation plans for CEOs and entrepreneurs, including aligning compensation with customer desires. It discusses an innovative compensation system in the furniture moving industry and the challenge of prioritizing customer demands. The importance of fair compensation based on productivity and performance is emphasized, along with the significance of finalizing compensation before the year starts. Giving options or profit sharing to management teams and employees is also discussed.
Align compensation with customer desires, ensure fairness in pay, and focus on individual carrots sparingly.
Design sales compensation plans that are simple, uncapped, and include short-term bonuses tied to specific goals.
Manage wage inflation and salary expectations by implementing clear procedures, policies, and wage structures.
Deep dives
Creating Effective Compensation Plans
In this episode, Vern Harness discusses the five core principles outlined in his book 'Scaling Up Compensation' that CEOs should consider when creating and structuring compensation plans. These principles include aligning compensation with customer desires, ensuring fairness in pay, focusing on individual carrots sparingly, gamifying rewards, and implementing profit and equity sharing plans.
Simplifying Sales Compensation Plans
Dave Prusinski shares his insights on designing sales compensation plans. He highlights the importance of keeping plans simple and easy to understand for sales reps. He advises against capping earnings, emphasizing the need to allow top performers to reach their maximum earning potential. Prusinski also emphasizes the benefits of short-term bonuses tied to specific goals and objectives.
Managing Wage Inflation and Salary Expectations
Jim Sharp discusses the challenges of managing wage inflation and salary expectations in an organization. He suggests implementing clear procedures, policies, and wage structures to provide transparency and fairness to employees. Sharp highlights the importance of having job descriptions and clear paths for advancement and compensation growth within the organization.
Communicating Changes in Compensation Plans
When making changes to compensation plans, it is crucial to communicate the reasons and decisions behind them to the sales team. Holding individual meetings to discuss the changes and the impact on the business helps salespeople understand and accept them. Logic and reason play a significant role in gaining sales team buy-in. Taking into account the health of the overall business and making salespeople part of the decision-making process fosters understanding and acceptance. Open and honest communication is key to preventing resentment and maintaining team cohesion.
Considerations for Changing Compensation Plans
Changing compensation plans mid-year should be approached with caution. While significant changes may be necessary in certain situations, such as when there is a fundamental change in the business that affects sales reps' ability to meet targets, consistency in compensation plans year over year is generally favored. While necessary tweaks to compensation plans may arise due to factors like financial goals, product changes, or profitability considerations, avoiding massive changes allows reps to focus on selling instead of constantly figuring out new compensation structures. Sales reps should receive the next year's compensation plan in the quarter before it begins to ensure clarity and avoid confusion.
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I have spent the past several weeks going through almost 3 years of In The Trenches archives to tease out all of the best insights that we’ve been able to collect from each of our guests specific to Compensation. I won’t need to convince any CEO of how important compensation is, and how fraught with peril it can be when it isn’t done right. Below is a list of our guests and topics, which include timestamps, so you can skip between the segments that are most interesting to you:
