In the last two issues of The Flash Report, I’ve been beating your brains out in an attempt to ease you into the important concept of page based compensation. Some are convinced (Enough already!) Some will never implement this system, stating that it’s just too complicated, expensive, unfair, yada yada yada.
Still, there exists a large middle ground of readers; those of you who are tempted, but still don’t know how to take that first step. I know this because of the various comments and emails we’ve received on this subject. So, let’s back away from page-based comp plans for now, and examine some basic compensation theory.
In order to better understand how compensation works (or, at least how it’s supposed to work) it would be helpful to be familiar with some basic concepts of reward and punishment. Many theories of the effects of reward and/or punishment were derived from the works of B. F. Skinner while he was a graduate student at Harvard University (1930 – 1931). Skinner developed what became known as the Skinner Box, through which he was able to expose subjects (rats) to a series of rewards (usually food) and punishments (usually electric shock, loud noises or bright flashes of light).
Roughly a gazillion books (rounded to the nearest bazillion) have been written on Skinner and his rats. We can easily boil them down to just a few principles. But, first, two definitions:
1. Reward – the introduction of something the rat (or sales rep) wants. Rat = more food. Sales rep = more money. Reward can also be the removal of something the rat (or sales rep) doesn’t want. Rat = less noise. Sales rep = fewer administrative duties.
2. Punishment – the introduction of something the rat (or sales rep) doesn’t want. Rat = electric shock. Sales rep = territory realignment. Conversely, punishment can be the removal of something the rat (sales rep) wants. Rat = take food away. Sales rep = assignment of commission to another rep.
Now, for the principles:
Punishment will change behavior faster than reward. It moves the subject away from a particular behavior. However, it doesn’t let the subject know anything about what’s appropriate. For example, if a sales rep is spending too much unproductive time with a specific account, you could take that account away. What does the rep know about the desired behavior? Nothing! What’s more, since behavior, like water, seeks its own level, a new behavior will always replace the old one. Unfortunately, since you never defined the desired behavior, you have no control over what it is.
Reward, on the other hand may be slower to cause a behavior change, but is much faster at defining the desired change. For example, if a sales rep sells an MPS contract, generating significant incremental revenue and profits from supplies and service, then pay that rep for those pages. If you do, and the rep knows why they were being compensated (very important), they will identify incremental page capture as the desired behavior and sell more pages.
Remember what I said in an earlier issue of this report. “Sales reps are coin operated. They will do exactly what you pay them to do.” The difficulty we often experience arises when what you want and what the sales rep thinks you want may be very different. This dynamic is due to a great extent upon flaws in your reward (compensation) system. So, of course, there are rules. Here are just a few:
1. The reward (to the sales rep) must be as close to the desired activity as possible. Too often, dealers will award an annual (or even quarterly) bonus for performance. What are the chances that the sale rep will remember, a year after the desired action, why they received the bonus? We would say slim to none. A monthly payment makes it easier to identify what you want because it’s much closer to the activity. So, stated another way, the closer in time the reward is to the desired action, the more likely the sales rep will link the two.
2. Be certain what you see as a reward is not seen as punishment (based upon the definitions above) by the sales rep. How many times have we seen really good reps generating high commission incomes promoted to sales manager? Reward or punishment? Many times the rep sees the elimination of commission as a punishment. Consequently, they will ignore the desired management “behaviors.” Not only do you have a lousy manager, but you also lost a great sales rep in the process.
3. Last, but most importantly, compensation should be tied to a specific activity. Smaller, more frequent rewards have greater power for change than fewer, larger rewards, so long as they occur close to the activity. Some dealers have told me that they “reward” their reps by paying a commission on the service contract. But, the contract renews annually. So, the commission is annual. Too much time. Better to pay the rep for each page generated, as soon as the meter read is taken. Even at a rate of $.002 per page (the going rate) the rep will be able to relate the comp to the page and will have an incentive to work with the account to generate more pages. In the mind of the rep, more pages = more income. That’s as it should be.
So, take a close look at all of your comp plans. Do your reps know why they received the money? Can they tie the compensation to a specific activity? Do they see it as a reward rather than a punishment? Will they be drawn to the rewarded activity and do it again?
Not easy questions. Often the answers are even more difficult. But don’t cop out. Ask the questions, examine the answers. Make the changes. Given the market dynamics we are all experiencing, you can’t put this off any longer.
