Get a Grip on Commissions

Commissions and salespeople go hand in hand. The strength of a commission structure's grip on a salesperson's compensation can mean the difference between an attractive and unattractive sales job.

Commissions are one of the first and most widely used merit-compensation programs in existence, but in today's wireless market, are they enough to attract and to keep quality sales personnel?

FEED THE HUNGER The commission structure often is a big portion of negotiations when hiring a salesperson.

Salespeople are driven by money, said Randy Chambers, president of Telecom Search Group, a Bella Vista, CA-based executive search firm for the telecom industry.

Typically, the ratio of base salary to commission for wireless carriers' sales executives ranges from 66/33 to 50/50, Chambers said, but the income potential does not end with that commission figure. Bonuses and other incentives go beyond reaching sales quotas and are used to motivate employees to work even harder. However, an enhanced commission or bonus structure works to motivate more sales or to entice a top-notch salesperson to join a company only if the goals seem attainable.

"If it's easy, he makes more money because he has the opportunity to sell perhaps 150% to 200% of quota, and that's where the bucks are at," Chambers said.A wireless company that offers an exponentially accelerated commission percentage for salespeople who reach 200% of quota says, "We want to penetrate this market. We are willing to pay you to hustle," Chambers said. However, this incentive is not as effective with job candidates who believe that reaching those higher commissions is impossible.

Experienced sales personnel needed for the top posts often are at a point in their careers where they are not interested in working hard enough to reach the benefit. Many have family and other responsibilities, so working 80-hour weeks with a lot of travel might not be worth the enticement of greater commission percentages, Chambers said.

Carriers are not placing caps on commissions as another inducement. This incentive would be attractive to most salespeople, especially those who are willing to spend the time to blow out their quotas.

PLAYING WITH STOCK Although established companies with a long history on the stock market generally reserve stock options for top executives, start-up companies often give stock options to a wide range of employees. This enables those companies to compete with the established carriers for high-quality employees without tying up as much cash. However, only those salespeople who are inherent risk takers are attracted by a lot of stock options.

"They want a reward for their efforts and don't want to wait around three years to realize their stock options," Chambers said. Also, veteran sales candidates want more assurance and personal control over their rewards, especially if they were previously employed by larger companies.

OVERALL MARKET Some companies have seen commissions and salaries take a downturn now that competition has increased.

"With increased competition, now you have to play the price game." Moore said. This means base salaries and commissions are not as high as they have been in the past.

"It's dictated by consumers," he said. In the last three to four years there has been higher levels for regional sales managers, as well as sales-department directors and vice presidents. However, because consumer prices have been going down, departments such as engineering and sales have had to take cuts, Moore said.

However, Moore doesn't expect the downturn to last long.

"When third-generation systems come on-line, salaries and commissions will go up dramatically," he said.

Carriers with big money will have systems ready and will be able to offer more to their sales forces before their competitors do because they'll have more capabilities.

For now, however, there's just not the same share of the wireless services pie available for each salesperson as there was before the PCS companies started coming on-line, Moore said. Wireless carriers need to get more creative with their incentive programs. For example, free trips are popular incentives, Moore said.

One of the great attributes of such an incentive is that the perception of its value can outlast the dollar cost to the company.

When you work with a travel agent on a regular basis for scheduling company business trips, the agent will work hard to find a trip program that will provide a good incentive for sales personnel and not break the sales department's budget, Moore said.

"For a salesperson, their hot buttons are fun and money," Chambers said. Carriers need to offer a mixture of incentives to attract and to keep top-notch salespeople without cutting too much into the profits.

SALARIES STILL IMPORTANT In today's wireless industry, the commission structure is not the only figure a potential employee wants to see.

The exponential entry of wireless carriers has increased interest in wireless services, but it also has increased the number of salespeople competing for market share. The commission quotas still have to seem attainable by a potential sales candidate, but an increase in the guaranteed side of the compensation package is especially important to many job candidates.

Telecom Search Group's Chambers said a problem with salaries in hot markets is that the cost of living makes it hard for carriers to keep people moving up with salaries.

For example, a sales job in the San Francisco Bay area may go for $100,000 base salary and $75,000 to $100,000 in commissions per year, he said. The same type of job in Cincinnati may go for a base salary of $65,000 with a total of $100,000 to $110,000 per year including commissions. However, the cost-of-living differences may cause the position with a lower salary actually to be more lucrative.

Chambers said in certain markets carriers are noticing the increased competition for the good-quality salespeople and are adjusting base salaries accordingly.

One of his clients in the Northeast was interested in a candidate who was making about $60,000 a year in salary in his current position. The company was ready to offer him $65,000 a year but had to hold off on hiring. When the company came back weeks later to make an offer to the candidate, the initial salary offer had risen to $75,000 a year.

Chambers said it was obvious someone at the company had done some research and determined the original offer would not have played well to the candidate in the current state of the job market in that part of the country.

Every incentive option has its positives and negatives. The company has to recognize what the potential negatives might be for the employee and promote the incentives in a way that they convey a higher perceived value than they invest in dollars.

Stock options, bonuses and free trips all can be used to entice salespeople. But the bottom line for many salespeople still lies with commissions and how attainable they perceive that money is.