In mid-September I had the pleasure of touring several decorative plumbing and hardware showrooms in the Chicago area.
As part of the tour I did an informal showroom compensation survey. This confirmed what I have believed for quite some time — most showrooms don’t have a well-thought-out compensation strategy. Just to confirm my suspicions I called six more wholesalers and asked about their showroom compensation programs. Again, I received confirmation this is an area that can be improved.
When Carol and I started our showroom business, we weren’t sure whether we’d survive or not. We took no pay for the first six months and we underpaid our first employees. Needless to say this policy cost us more time, energy and money than if we’d paid more and attracted better-qualified people. The good news is we learned very quickly that hiring on the cheap was not a good idea.
That’s when we decided to establish a well-thought-out,
formal, written compensation strategy. The core of the policy was to try and pay a tad more than our competition. This coupled with having detailed job descriptions for every position and doing twice-a-year performance evaluation reviews helped us attract and retain the very best employees possible. We also developed a formal, written training program that covered every position in the company. This went through several changes in the first few years.
Since selling our business 17 years ago I have had the unique pleasure of doing consulting and presenting educational workshops. One of the topics of highest interest is compensation. How much to pay? How to structure the compensation package — salary vs. commission and all other important parts of a successful compensation strategy.
I’ve also learned from this experience that compensation for showroom salespeople is not given the importance I believe it should have. I believe showroom sales consultants are not paid as well as they should be. I also am aware that I’m opening up a can of worms with that statement! Many wholesale managers will be unhappy with me, but let’s see if we can approach this with an open mind. Listen to what I have to say and then judge.
I know from operating my own business (three showrooms and 40 employees) that the showroom business is a higher-cost part of the business than the wholesale side. Just building the showroom and providing all those great-looking displays is a major investment. Then you have the expense of marketing the showroom. I hate to say this, but all too often I believe management then skimps on what it pays people working in the showroom. It’s a tangible that can be controlled! Plus, showroom salespeople don’t produce the same sales revenues wholesale sales people do. Notice I said sales revenue and not gross profit dollars which would be a more accurate measuring tool.
Getting it right
Having said this, I’d like to propose management consider developing a showroom compensation strategy that works well for both the company and employees. All compensation systems should have at least four main goals:
1) Internal equity: Do you provide a clear definition of a job’s worth within the company?
2) External market: How competitive is the company compared to the outside labor market (your competition)?
3) Individual contributions recognized: Does the compensation system pay employees fairly based on results, effort, education/experience, talent and overall job performance?
4) Legal: Does the compensation system adhere to major labor laws such as the Fair Labor Standards Act, Americans with Disability Act and other state and federal laws?
I don’t believe enough companies have a well-defined, well-thought-out compensation strategy. Too many organizations plan and administer their pay systems by default; or worse, fall back on the squeaky wheel gets the grease practices. More than any other area in human-resource management, ignoring pay and performance systems can be devastating. It is a very expensive and laborious process to hire new employees, buy back the trust of current employees, and renew the company’s energy and motivation level.
Smart and successful companies do regular planning and evaluating of their compensation and performance appraisal systems. Because compensation is important to employees it is critical to consistently communicate a clear message regarding how pay decisions are made. In short, a solid pay-for-performance strategy requires employees’ pay matches the organization’s message. What are the strengths and weaknesses of your current compensation system?
- Is the company able to attract the appropriate skill sets and types of employees when needed?
- Where are you finding the best employees for your showroom?
- How long do your employees stay with the company?
- Where do employees go when they leave the company?
- What are the company’s promotion policies?
- Are employees frequently asked to take on new tasks without being rewarded for their efforts?
- Do the employees value the company’s benefits, incentives and work environment? Should any of these be changed or updated?
- How is employee morale? This information can be gathered from managers, exit interviews, employee surveys and other communication tools.
- What mix of base pay, incentive pay, work environment and benefit levels make the most sense for the company when considering the competition, types of job and labor market available?
- Is there a pay matrix that rewards high-performing employees with a larger annual merit increase?
- Do you perform regularly scheduled performance evaluations? How do they work?
- Does your company review where employees fall on the pay range according to experience, performance and longevity?
Please take a moment and answer these questions as honestly as possible.
My main concern is obviously in the area of showroom employees, but really these questions apply to the entire company.
The main goals of a comprehensive compensation strategy should be:
- Motivate people to join the company.
- Motivate employees to perform at the top level of their skill set and have fun doing it.
- Motivate employees to stay.
- Here are ideas I believe would/should be palatable to the company and well-received by showroom employees.
- Do research in your local marketplace and determine what the “going rate” for good showroom sales consultants is and then pay just a tad more.
- Write detailed job descriptions for every position in the showroom. Everyone deserves to know what’s expected of them.
- Do regularly scheduled job-performance evaluations. Everyone deserves to know how they’re doing.
- Offer an attractive benefits package (vacation, health and medical, pension, etc.).
- Have a base pay plus commission program driven by sales and gross profit margin. The more they sell, and the higher the margin, the more both the company and the employee make!
- I have developed a sliding scale commission program driven by sales and gross profit margin. If you’d like to learn more about this, send me an email.
- Do selected “spiffs” to push the vendors and products you want sold.
- Do regular merit reviews and reward accordingly.
- Have a formal, written training program that brings new employees up to speed quickly and continually helps employees achieve maximum productivity and thus the opportunity to earn more money.
- Do regularly scheduled staff meetings so management can communicate on all topics of interest and importance, including compensation strategy.
This is an important topic for both companies and employees. By having a well-thought-out, well-defined compensation strategy you should expect to see productivity increase, turnover decrease and overall morale improve.
This article was originally titled “The right payoff” in the November 2015 print edition of Supply House Times.