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This guest column appears in the April 2009 issue of ISO&Agent magazine.
By Matt Clyne
A direct correlation exists between well-written compensation plans and healthy, growth-orientated businesses. Wall Street, despite some well-publicized instances of bonuses gone awry, is one of the best examples of how generous bonus schemes can work to a business's advantage.
For the last decade, the banking industry attracted some of the best and brightest college graduates and thrived because of it. By one estimate, provided by President Obama during his appearance on "The Tonight Show," 40% of growth in the United States' real gross domestic product came from our position as the world leader in banking and finance.
The reason the highest-achieving students gravitated toward Wall Street was not because these jobs were the easiest to get or offered the most intrinsic rewards. Top graduates instead went to Wall Street because the jobs paid the best.
Similarly in the sales profession, some compensation plans seem to attract the best and brightest salespeople. Ask any inexperienced salesperson and they will believe that pharmaceutical sales comes with the best type of sales compensation because drug companies offer generous car allowances, high base salaries and the glamour of "educating" doctors.
ISO sales careers share reward elements of both Wall Street and pharmaceutical companies.
To a certain extent, the fictional character Gordon Gecko was right when in the 1987 blockbuster "Wall Street" he says, "Greed is good." Greedy salespeople achieve high levels of success.
If compensation plan meets all the pay requirements of an individual salesperson, what will motivate that salesperson to achieve a higher level of success? This job is too difficult to expect salespeople to persevere without monetary motivation. Salespeople work hard because they are motivated to earn more money.
Managers throughout the payments industry lament their best salespeople who have achieved a level of contentment. Greed and contentment are antithetical. If your sales team is content, they must be underachieving.
Some social theories hypothesize that if the government extends unemployment benefits, it will lead to higher rates of unemployment. The argument some political scientists make is that workers will be less likely to earnestly seek work or job
training if they continue to receive unemployment benefits. While I do not necessarily agree with the premise, I can understand the logic.
Lifetime Residuals
Agent-compensation plans that emphasize lifetime residuals lead salespeople to believe they can reach a level of contentment, which may lead to them disengage. Many salespeople believe when they reach a level of contentment in terms of their monthly or annual residual compensation, they will be able to stop working as hard. This is a myth.
As any long-tenured salesperson can verify, agents who believe lifetime residuals will lead to pay-plan nirvana typically discover unpleasant truths about residual income.
Attrition can have a devastating effect on a portfolio. In today's market, even well-performing portfolio residuals attrite at an alarming annual percentage rate. It is not unusual to see residuals declining at 20% or more year over year. This means the salesperson that disengages, after three short years, will have less than half of his or her monthly income.
Another compensation complication for salespeople trying to retire on their residuals is how a person's lifestyle increases in proportion to his or her income. While a particular salesperson is content earning a given income, such contentment eventually leads the salesperson to want to spend more time on leisure activities.
As their income grows, so do new costs. The process of income growth and expense growth seems to run along smoothly until the salesperson disengages from the sales process and relies on lifetime residuals. At that point, the expense growth begins to outpace income.
Agents also experience difficulty with their compensation plans when the plans change. There is a universal truth to compensation plans for salespeople: Compensation plans change.
Every agent has a story that ends with a compensation nightmare. It is rare that any ISO can predict the future with a compensation plan.
Compounding this is the payment industry's complex interchange system and the ever-changing nature of the billing methodologies.
Combat Future Pitfalls
How can a salesperson combat future pitfalls? An agent first should identify compensation plans that are easy to understand. The simpler the plan, the less likely hurt feelings will occur later when a conflict arises.
The agent also should make sure the compensation plan is well documented. While it is impossible to cover every scenario that may arise in the future of a relationship between a salesperson and employer, the compensation plan can outline some likely events. For example, the plan should spell out plainly how residuals will be treated if the company is sold.
The most secure way to guarantee an equitable deal is to work only with organizations that deal with the highest ethical standards. Measure the integrity of the organization by observing how it interacts with other sensitive compensation challenges.
Agents should speak to other salespeople to see how the plan is working for them. I am always surprised when I hear from salespeople who are upset about their plan who have not read the document in detail.
When a company must change a compensation plan, it should do its best to model how the changes will affect the individual salesperson's compensation. If these models are done truthfully, the plan will expose any deficiency with the proposed change.
Work To Achieve More
ISOs should design compensation plans to leave the salesperson striving to achieve more. The plan should give the salesperson the opportunity to achieve additional income. This is exactly how compensation plans on Wall Street work.
On Wall Street, there were only two rules when it came to compensating top performers. First, Wall Street insisted that their top performers were highly paid.
Second, it insisted that the top performers earned every dime of the compensation.
Any good compensation plan should start with the same objectives.
A concept in sales is called the "big dog" or "top dog" salesperson. Having a successful salesperson earning a high monthly income can be a strong motivator for the whole team. The payments space has a select group of very successful ISOs. This small elite group of young entrepreneurs serve as a constant reminder and motivator for every other struggling salesperson.
It is good to have an expensive car or two in your parking lot on as symbols of success when the sales meeting is going. The symbolic nature of the success may be more of a motivator than the actual success.
Let me take this opportunity to thank those select few top earners that have raised the bar for all salespeople in the payments space. If they can do it, why can't you?
Matt Clyne is a sales consultant in the merchant-services industry. His email is clyne.matt@gmail.com
