A Compensation Strategy
At every Business Management workshop I present, one of the topics that receives the most interest is compensation. The same is true when I do consulting - owners and employees want to know what programs work the best. So in this article I’d like to discuss compensation in both general and specific terms.
The compensation strategy that a company implements is one of the most important pieces of the complex puzzle of running a business. Compensation packages are extremely important in attracting new hires and retaining good people. The package should be a motivator for both high and efficient productivity. It’s a big part of maintaining a positive morale and establishing a happy work environment.
The total compensation package for employees is one of the main engines that drives your business. And, if your company is like most companies, it is an expensive engine to maintain - probably your company’s number one expense.
For all small businesses in America, total people costs fall somewhere between 50% and 60% of their total operating expenses. The overall average is 56.4%. How does your company compare? Do you treat the showroom portion of your business as a profit center? Can you determine what your total people costs are for your showroom operation?
Payroll is more than a simple expense. How your company pays its employees and the factors that are used to establish pay scales and award bonuses and other incentives can profoundly affect the quality of your work force. And, it can affect your ability to attract and retain productive, reliable and happy employees.
In the Human Resource chapters of the Kitchen and Bath Business Management book I wrote for the National Kitchen and Bath Association, I suggest that there are five things that companies should strive to accomplish if they truly want to be the very best they can be.
By doing some easy market research you can learn how the competition in your market place is compensating their employees. Then develop a strategy that allows you to compensate your employees just a little bit better.
What’s that you say? “With people costs being 55%+/- of my total operating expenses I need to find areas to cut back, not pay more.” I’m suggesting that your total people costs will actually go down, not up, when you implement a strategy of COMPENSATING THE BEST.
How can this be? You’ll be attracting a higher caliber employee. Their productivity and efficiency will be greater. You’ll reduce that very expensive area called employee turnover. You’ll have people knocking on your door looking for employment because word has gotten out that you pay better. And, you’ll have a happier work environment. These are all good reasons to take this very seriously.
Setting the foundation for an effective compensation planFirst, think “system.” Then think “strategy.” Keep a constant eye toward the needs and goals of your business. An effective compensation system is a well-thought-out set of practices that help to ensure the following results:
The pay scale for the various jobs in the company reflects the relative importance of the particular job and the skills that performing it requires.
Pay scales are competitive enough with others in your region so that you are able to retain and attract employees. Losing good people to your competitors is not a good thing.
Your compensation policies keep pace with the changing nature of today’s labor market - particularly in recruiting and retaining the knowledgeable workers who are in strong demand.
With all of these challenges in the area of compensation, the biggest challenge is developing programs that are good for both the company and the employees.
How to compensate showroom salespeopleOkay, that was a fairly broad introduction into the subject of compensation. Let’s get more specific and direct the rest of the article to showroom compensation.
I’m about to make a broad, very general comment. It doesn’t apply to all of you, but it does apply to many of you. Here it is: Plumbing wholesaler showroom sales consultants are not as well paid as they should be! You might ask, “On what do you base that comment?” I’ve got two sources. First, the every-three-year showroom survey that Supply House Times does is the only benchmark information available. Each of the last several surveys showed showroom sales consultant compensation in the range of $30,000 to $35,000. Some are in the low $20,000 range and a few are in the $50,000 to $60,000 range. What the survey doesn’t reveal is how much were the monthly/annual sales of these folks. Certainly compensation and productivity have to go hand in hand.
My second source is my experience. In the last 12 years I have worked with more than 100 wholesalers on a one-on-one basis consulting, presenting various training workshops and getting intimately involved with all aspects of their showroom operations. In my opinion many of these fine companies were not compensating their showroom sales staff as well as they should. The various compensation programs that I’ve seen range from straight salary (hourly) to salary (hourly) plus some kind of commission. Many are driven by sales and not gross profit margin.
In past articles I have spelled out several different compensation programs for showroom salespeople. You can browse the archives to read these.
The program I like best - and have helped several dozen wholesalers implement - is a competitive salary that amounts to about two-thirds of the total compensation package and an incentive that is driven by sales and gross profit productivity. I like the sliding scale commission program that compensates for higher sales and higher margin.
Certainly compensation varies by marketplace. Some areas demand higher wages than others. But to give you a very general guideline, see the chart for some sales, margin and total compensation numbers that I believe are very fair for everyone concerned.
As you can see, the total compensation is relatively close to the monthly sales average. The GP margin drives the compensation number up and down.
If you have any questions or would like to explore developing a compensation program for your showroom business, give me a call or send me an e-mail and we can discuss it.
I hope this article will at least prompt you to step back and analyze your showroom compensation strategy. Make it the BEST and take a giant step towards being the BEST!
Are you aware of the Supply House Times 2008 Showroom of the Year competition that was announced in my last article? If not, please search it out and get your showroom nominated. The deadline is August 15.