Sales Incentives / Paying Overtime, CompDoctor January 1999

Q: Our salespeople spend far too much time rewriting orders from existing customers and not enough time growing those accounts and developing new ones. How can we use pay to motivate them to generate new business and still keep the existing orders coming? -B.H.

CompDoctor: Let me guess, B.H. In your day, no one had to chase you with a nightstick to make you pound the pavement. No siree, you knew the meaning of the word "sales," and by God, you thanked the boss for every business card printed with your name. You probably also got a little thrill each time a customer reordered, because it meant that you were doing something right. Those were the days, huh, B.H? Now you know how your salespeople feel. Who wouldn't love that cozily familiar customer base and those commission checks hitting the desk as regularly as the morning paper? They're thinking, If I can make a reasonable salary by showing up, schmoozing with people who like me, and writing up an order, why should I go out of my way to find new customers? I could work my tail off and still get rejected. But it's time to get your people off the Chat-n-order Choo-Choo and onto the Pay-the-Rent Express.

Although you leave questions unanswered - Have you hired the right people? How do you pay them? What sales support technology do you have in place? - you tell me enough to suspect that your commission structure may be on the wrong track. If the commission rate for reorders is keeping your salespeople too comfortable, you can help them get past the inertia of the easy sell by implementing an aggressive cash incentive program.

How much incentive pay is necessary? And what would trigger a payout? That depends on how much new business you need and when you need it. If you cannot survive without an immediate boost in revenue, only a Burlington Northern-powered incentive program will get your salespeople excited enough to make it happen.

For example, let's say that you pay a 10 percent commission on the gross dollar amount of each order, whether or not the order represents new business. If you need new business fast, you might set the commission rate on new customer orders at 25 percent or 30 percent, keeping the payout for reorders at 10 percent. Of course, you may need to limit how long a new customer is considered new, but you get the idea. If you can afford to grow the business gradually, use Thomas the Tank Engine-scale incentives that cost less, and take a whistle-stop tour of your Rolodex to find strategic partners who will provide customer referrals. Then work on implementing technology such as a Web site that allows potential customers to find you. You can also try noncash incentives, from a day trip on the Minnesota Zephyr to a week at the Olympic Games in Sydney. Typically, if used in moderation, such tangible gifts have more impact on salespeople than cash incentives do - perhaps because non-cash incentives extend the benefit to family members, making your employee a hero at home. I still have fond memories of the trip to Mexico that my father won in a sales contest more than 30 years ago; if he received cash bonuses, they've slipped my mind.

Although I am sure there are many more boxcars on this train than meet the eye, if you've got a decent sales force in place, a good old incentive program may be the only growth engine you need. Treat people well and they'll stay.

Q: Even though we have raised our pay grades to competitive levels, we are losing good people every day. What can we do? -B.C.

CompDoctor: B.C., your initials remind me of the age of the dinosaurs, when food was all there was. No food, no dinosaurs. End of story. In that prehistoric way of thinking, one might assume no pay means no employees, and that more pay means they'll stay. It's not that way with compensation, though. And because I'd hate to see you fall prey to extinction, I will help bring you up to date.

First, I would like you to seek out and read any one of the many recent survey reports that say employees don't put money at the top of their list when asked why they stay on the job. No, they want flexible hours, recognition, and a chance to make a difference. They want stock ownership and family-friendly work environments. B.C., what you need is feedback from your employees (do a survey), not from me. But since you asked.

To put the apparent mutiny into perspective, you should know that most companies experience an average turnover rate of about 1 percent per month. (Currently the national average is 1.2 percent to 1.6 percent per month, but it varies.) In a 300-person company, that works out to an average annual turnover of 36 people. So if 50 people were to leave in one year, that company would have cause for concern.

Now, if you still think pay makes all the difference, listen to this. According to a recent survey reported in the Society of Human Resource Management magazine, companies that tried to solve turnover problems by raising pay, without any corresponding changes in company practices or treatment of employees, actually increased their turnover rates. Companies that not only issued pay raises but also added benefits such as flextime, job training, and choice of work assignments were able to decrease their turnover rates.

The message is, pay works to help reduce turnover, but it doesn't work alone. Fixing your company culture may be a more arduous task than simply keeping pay consistent with the market, but in the long run it's probably cheaper.

Think of it as survival of the fittest. By creating a place where people like to work regardless of pay, you can avoid losing your employees - and your place in the food chain.

Hourly work doesn't mean low status

Q: We have several employees who management thinks should be treated as hourlies eligible for overtime. However, these employees want the higher status associated with exempt (salaried) positions. Should we give in? -R.B.

CompDoctor: That depends on your tolerance for risk, R.B., assuming you're the one who signs the change-in-status documents.

Status is nice, of course, but I believe that hourly employees can have it when their managers give them enough recognition. Status need not be conferred by absence of punch cards alone. In fact, too many companies have catered to such pleas from their employees, or from managers trying to beef up their risumis, only to be slapped with back overtime pay and penalties when the employees in question didn't qualify.

Even so, you may get pressure from managers to bend the rules. From their perspective, the more exempt employees they supervise, the easier it is to get people to work longer hours. Plus they don't have to deal with overtime issues or that saved-by-the-bell look on an employee's face that says, "Hey buddy, it's 4:59 p.m. I'm outta here in exactly one minute, and you can't make me stay!"

Still, when it comes to the Fair Labor Standards Act (FLSA), you're lodged firmly between a rock and a hard place - and there really is no way to tunnel out.

According to the law, employees should be considered exempt only if:

• They occupy an executive, administrative, or professional position, including teachers, academic administrators, and outside salespeople;
• AND their duties consist primarily of managing an enterprise or recognized department or subdivision;
• AND they direct the work of at least two or more other employees, have the authority to hire and fire, and have regular discretionary powers;
• AND they devote no more than 20 percent of their total work hours to activities not directly related to management;
• AND they are paid on a salary basis at a rate of at least $155 per week.

Certain computer workers are considered exempt if they meet each of the above criteria.

Although this test appears simple on paper, the interpretation can be quite complex. In other words, do not try this at home. Instead, run it by an experienced employment attorney or call the Wage and Hour Division at the Minnesota Department of Labor (651-296-2282). It can help you classify a job by interpreting the guidelines, but you'll still have to make the decision.

If you take my advice, you'll do the legal thing by the FLSA and leave "The Great Escape" to Steve McQueen. Pay your people overtime and treat them with respect, which is probably what they want most anyway. And you'll get what you want, which is to avoid ending up behind bars, dressed in standard-issue orange.

The CompDoctor is James C. Fox, chairman of Fox Lawson & Associates LLC, a compensation and human resources consulting firm in Roseville. Post your questions at www.foxlawson.com (click on the Q&A Forum).

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