The Affordable Care Act (ACA) will begin to take hold during 2013-14. Consider your options… and do not be surprised.

With its final electoral challenge removed in November, most provisions and edicts of the Affordable Care Act (ACA) will begin to take effect during 2013 and 2014. The proposed changes will be substantial to both the users and buyers (and funders) of healthcare in US markets.

Over the last two years, Wilkening & Company has written several articles on the impact of ACA on employers and employees. In these articles we have endeavored to forecast coming trends and market changes, comment on the implications of these changes to the healthcare landscape and advise readers regarding prudent actions to take. To review all or some of these, please refer to the links provided at the end of these comments.

My purpose here is to make two suggestions to employers as they approach these imminent healthcare-market changes in 2013.

First, if you already provide employee health insurance coverage and support, reevaluate your current strategy for delivering employee health insurance and see if it still works under to-be-imposed ACA mandates. Get help if you need it, but be sure someone in your organization is responsible for helping set a course (and seizing the unseen opportunities) that will get you through the next two years—at minimum cost and maximum employee satisfaction. Ignoring the issue will not work.

Second, if you are a small employer (under 50 full-time employees in the current ACA version) and do not supply health insurance, the new law will generally not apply to you. But, do not think you can ignore its impact or its rules. Why?

• The healthcare marketplace will change forever under ACA and benefits will begin to look and act more like compensation. In other words, perhaps you want to take a second look at employee health coverage and its cost—and visibly shift your “pay costs” around a bit. Also, expect federal and state government to get rather picky regarding the definition of part-time employees (we understand the IRS has or plans a 10-page form for reporting employment information to determine the number of full-time employees on your staff).
• When your employees have seen “Paris” (i.e.: the new features and benefits of ACA coverage and availability) they may become quite vocal about wanting some of that for themselves. Do not be surprised if your attractiveness as an employer suffers without health coverage or a pay subsidy. How will you respond?

In the end, remember that offering and delivering healthcare insurance to your employees is more than just a cost line on your profit and loss statement. It is part of your employment deal with your employees. So ACA will do more than just cost you more (or less) money than before. It will also get right into the middle of that deal you have with your employees—for better or worse.

On a similar note, many expect 2013-14 to be healthcare market chaos as the Federals are not ready to implement the 2,000+ pages of rules they have written. We recommend that all employers watch the ACA implementation & markets carefully and do your best to screen or protect your employees from state or Federal shortfalls and mistakes.

Any good company goes on the offensive when challenged. Do the same with ACA.

Wilkening & Company E-Notes previous articles on the Affordable Care Act—

July 2012   |   April 2012   |   June 2011   |   August 2010   |   June 2010

Wilkening & Company has assembled a respected team of tax, legal and risk-management experts to help clients navigate the uncertain waters known as ACA and to help them reach a cost effective and complaint outcome. We are trying to become a “go-to” resource in these trying and uncertain times. If you are concerned about what actions to take next, feel free to call or write Wilkening & Company at (847) 823-5090, bob@wilkeningco.com.

Making December the First Month of the Coming Year

In our experience, December is the slowest and least-productive (or threatening) month of the year. It is the land between Thanksgiving and Christmas and not a whole lot happens or is typically planned on the business front.

This is a practice and underlying attitude that has some of its roots in history with companies that would shut down plants for annual maintenance and restoration during December—and furlough staffs for forced year-end vacations. There was not much left to do for the folks in the office. Even today, December is still a time for companies and their employees to “shutdown.” While the years have passed, we find the practice generally remains. Hence, a company can lose up to an entire month in its business cycle and productivity.

If this sounds familiar to you, we suggest that you take a step or two to change the pace of December and effectively make it the first month of next year. We think this can be done by asking your executives and staff to think hard about the basics of the (their) business for the coming year, and look for improvement. Try doing these 3 things this December to build for 2013:

1. Conduct all next-year account reviews by mid-December. Have your sales and logistics staffs review major accounts that are responsible for 80% or more of annual volume or profit. The account “team” should present their next year’s plan to improve sales and profits for each and all accounts—more calls, more products, fewer deliveries, higher prices…… (i.e.: What will be done, how and who will do it?) This plan is the foundation for current account planning in the coming year. And, do not forget to talk about prospective accounts.
2. Ask your direct reports and staff to commit to one thing they will do in the coming year to make the greatest contribution to company success—that can be measured. They should also describe how their single action will support the company strategy. Delegate these discussions all the way through the ranks of the organization. And measure the success of these individual actions throughout the year, by asking each employee to measure and self-report.
3. Commit to improving the effectiveness of one or two variable pay plans for the coming year and finalize the changes and analyses by December 25^th (Bah humbug). You then have a week or three to prepare to communicate the change.  Of course, you should start earlier than December, but much of the heavy (and visible) lifting will likely occur during that last month of the year.

As you can see, the above three type of action steps are designed to ask executives and staff to prepare for and make decisions regarding 2013 action plans, and complete that planning before year’s end. By setting these expectations for December, you are giving the message that you want your staff making sales calls, talking to prospective accounts and finding ways to improve profits and service on January 2nd—not just talking about it. 

Now some would say that by moving planning from January to December will do nothing more than just move lost selling and account-contact time from one month to another. The reality is that buyers and decision makers are less available in December than at any other time of the year [it is their shutdown, you know].  Hence nothing is lost. It is just better use of your executive’s and staff’s time.

If you do not like the three December actions I have used above or already do them, pick 3 more of your own. But, definitely do something to make December the first month of next year. It should not be too hard to count up the benefits in terms of improved selling and productivity.

Marketing lessons of successful political campaigns

As the 2012 political season draws to a conclusion, we are increasingly bombarded by debates, mailings, television and radio ads, phone calls and messages of all types.

When looking at this mix of promotion, advertising and sales, one is reminded that there are clear lessons learned in the political arena that can be applied to product and service marketing in the private sector.  We believe that there are at least three lessons that transition well from one stage to the other. Let me describe each.

1. Do not let your competitor brand you. In politics, a campaign will—given the opportunity—generally try to brand their opponent in less than a flattering way to confuse or repel potential voters. Do terms like: “the rich guy, or tax-and-spend” sound familiar? So, how does this apply to a business? Every business should create its own market brand and carefully grow and support it. In doing so, you are simply saying that for which you want to be known in the marketplace. It is part of your competitive advantage, if used correctly. For example, terms like this might apply: customer-oriented, lowest-total-cost of ownership, the high-quality alternative, around-the-clock service, fastest turnaround, etc...
   
   Establishing and communicating your brand is a strategic decision and can become the basis of success or failure. If you fail to brand your company, products or services, you can expect that a wily competitor will see the opportunity and do it for you—in less-than-favorable terms. How does being described in terms like: “high-priced brand or just average quality” sound to you? They likely sound pretty good to your competitor.
   
   Can you articulate your brand (in writing) today?
   
   
2. Segment your market. In the past, we have assisted and advised school districts with campaigns to pass voter-approved bond issues for both increased operational spending and construction capital. In designing marketing programs to reach out to potential voters, we always advise the district to focus its entire attention on that core group of residents who consistently vote in every election. Do not waste your money and time elsewhere. As an interesting sidelight, we have often found (based on voter-record research) that many vocal critics or thought leaders regarding political issues or causes do not vote.
   
   And just as political campaigns must husband their limited resources between voters and nonvoters and swing states and non-swing states, a company must also aggressively apply their marketing and sales resources to the right customers. By right we mean those top accounts with the highest potential to produce increased market share sales and profit contribution. So if you can execute 1,000 sales calls per year, be sure the right accounts are getting 800 of those calls.
   
   Do not waste time on “nonvoters.”
   
   
3. The best field organization will always win the election. To win an election you must have a large, effective and well-managed field organization in place prior to and on Election Day. This army of operatives is generally calling upon voters, putting up signs, canvassing for support and making sure that “their” voters get to the poll to vote. To be successful takes both people and a focus on those key actions that will likely result in a favorable vote for their side. They work pretty hard in their known market segment, and know that every action counts.
   
   The private sector equivalent of the political organization is your field sales force. They are visiting with select customers and doing the right things every day that build relationships with customers and close sales. And, the great sales forces are consistently making more sales calls per day than their competitor. That sales force will close more deals (guaranteed).
   
   Do you have the best sales force in the industry? If so, you will always get more “votes” than your opponent.

So, next time you see a political ad or a politician courting votes, watch what they say and do and think of how their approach or technique can be seamlessly applied to your company.  The similarities will surprise you.

A Logistics Tool for Improving Sales Force Productivity: The Sales Atlas

We have often said the best way to measure sales-force productivity is by increased sales calls. In short, a professional sales force that makes more sales calls will always be more productive (and successful) than one making fewer calls.

A number of years ago, we completed an assignment with a client where we redesigned multiple sales territories for a team of sales representatives that managed up to 150 current or prospective accounts each. The objective of our work was to assure that required sales calls could be made on all key current and prospective accounts, and that sales-force travel time to and between sales calls was minimized. As a result of territory redesign and alignment, this regional seller and distributor of printer supplies and equipment easily realized a 15% increase in productivity—i.e.: 15% more sales calls from the same eight sales representatives.

One of the planned outcomes of the project was to provide a sales plan for each sales representative that outlined a suggested sales-call schedule on a week-by-week basis. This plan scheduled and prioritized sales calls by potential, need and geography to maximize the efforts of the sales force. However as we all know, any action plan will require adjustment “on the first day of battle” based upon customer need and unforeseen events.

With this reality in mind, we worked with the client and sales force to provide an additional tool to help the sales force work around those inevitable sales-plan adjustments and emergencies—and still achieve their call plan objectives. We called the tool the Wilkening & Company Sales Atlas.

The Sales Atlas was sent to each sales representative at the beginning of each week. It displayed an updated list of all territory customers and prospects (or locations) where a sales call is required and planned. For each account or prospect, the following information was shown:

1. Contact information (names, address, zip code...);
2. Year-to-date sales and annual sales potential or goal;
3. Annual sales calls required and planned; and
4. Most recent (and total annual) sales call(s) completed, to date.

Accounts were then identified by location and grouped in general proximity of one another. This was done by applying geographical information system (GIS) tools to the account database. Account clusters were generally created using:

• City or town;
• Zip code; and/or
• Distance and direction from a specific location (like the branch office in Garden Grove, CA).

Of course depending on the overall geographic location—e.g.: West Los Angeles or Western Idaho, the rules for grouping accounts will differ.
With this weekly report in hand, the sales force was able to better use its time. Two real examples follow.

• Let’s say a sale rep planned to call on a single priority account first thing next Monday. The Sales Atlas was then used to help the rep fill out the remainder of their daily sales calls by displaying other accounts in need of a sales call that were in close proximity to their priority account.
• When an account emergency arose (that required on-site attention) and the sales rep found themself 50 miles from the office with 4 hours left-in-the-day the Sales Atlas would help the rep find other nearby accounts where a sales call was needed or possible.

As you can see, the trick here is not for the sales rep to have an available list of customers, everyone has one of those these days. The trick is to know how those customers geographically cluster together. That information can help the sales force add that one extra call per day.

The above examples are two ways that a Sales Atlas has been used. But, there are dozens of ways for it to be a useful tool for the sales force. You are only limited by your imagination.
 
If you want to help your sales force make more sales calls by substituting customer time for windshield time, Wilkening & Company can help you create your own Sales Atlas. And you will quickly begin counting the increases in sales calls—and ultimately sales.

Wilkening & Company has helped dozens of clients improve their sales-force effectiveness and productivity and is a pioneer in applying geographic information systems (GIS) to the challenges of sales force logistics. For more information regarding Sales Atlas and other tools, write (bob@wilkeningco.com) or call at (847 823-5090.

How to Manage the Unique Compensation Challenges of a Family Business

Last month we discussed the causes that make the management of compensation in family-owned and operated businesses different and potentially more difficult and challenging than in other businesses. These factors almost always lead to trouble unless recognized and addressed.

In response, Wilkening & Company has developed four (4) principles for the effective management of pay in family-owned and operated businesses. By using these principles, we believe that the problems discussed in our August issue can be avoided. Let’s review each.

1. Know what you mean when you say “pay or compensation.” The definition of “pay or compensation” is quite simply: salary and cash bonuses. Do not be drawn into a discussion over whether your sibling’s ownership-based distribution (or draw) or country-club membership is compensation. They are not! But in family businesses both pay and non-pay cash distributions are freely mixed all of the time, and vociferously debated. Why is this important? Stick around for a minute for principle #2.
   
   
2. Know the facts. If you want to evaluate a sibling’s pay or compensation, use the tried & true method of comparing it to the market for similar jobs and businesses as reported in pay data surveys. Compensation data from these sources primarily represents salaries and annual bonuses or incentives. Ownership or non-cash distributions (like benefits or perquisites) are not collected nor reported.
   
   When using any survey, make sure the data you use is reliable, fairly (independently) collected and based upon enough observations or data points to make the use of statistical terms like “median” possible and meaningful. Generally using the comments of your next door neighbor or a job-search website (or similar sources) for your data is highly suspect. So if you think someone is paid too much, see what other companies have actually reported paying (in salary and bonus) for the same job. Know the facts.
   
   
3. Be transparent. Transparency is a term thrown around freely in the arena of politics these days, where it means little or nothing. But, what does it mean in the arena of family compensation?  It is generally known that by the time a family-owned and operated business reaches its 4th generation, there can be as many as 30+ participants involved in the affairs of the company by right of ownership, marriage or future succession. These participants are often called stakeholders. And, each will likely have an opinion regarding compensation and other operating matters, and many are not shy about stating same. To assure that these opinions are based upon facts and not reactions to a data surprise (e.g.: “I did not know Uncle Jerry made $200,000 last year!”), be sure key family stakeholders know all of the information they need to know about family-member (and other key executive) pay within the enterprise.
   
   Publically-owned companies routinely publish key officer, director and other executive compensation data to all (or select) shareholders each year in a “proxy” statement. Take the same approach with your stakeholders and publish your own annual proxy statement for limited distribution. But remember to remind the reader that this is strictly privileged information and may represent a competitive advantage. Being a stakeholder goes beyond just having opinions, and has its responsibilities.
   
   
4. Define fairness. It is well known that an individual’s perception of fairness is primarily determined by their own reference or perspective. For example:
   • “If I make $50,000 a year in my job, $550,000 paid to our company’s CEO (my cousin) is unfair.”
   • “If we need to spend $4 Million in capital next year, $550,000 paid to the CEO (still my cousin) is unfair?”
   • “If the banker next door made $1,135,000 Million last year, my paltry $550,000 is unfair!”
   • “Aunt Mary Beth told me you make too much money, and it is unfair.”

In the end, “fairness” depends on where you are standing. And, your ability to influence perceptions or opinions (once made) is limited. So, actively influence perceptions of fairness before the fact. How? First (and of course), consistently apply the first three principles above. But even go a step further. Define what the company considers as fair through the select disclosure of company pay data and its accompanying market analysis to key stakeholders and opinion leaders. Some may disagree, but everyone will understand the scope and terms of the debate. And, the benchmark for fairness will surely have been established.

Compensation can be a perplexing and time-consuming subject within the family-owned and operated business. As you can see above we believe that if a company follows some simple and easily-implemented principles, family members can avoid common family-compensation pitfalls and free up time otherwise consumed with this often contentious subject. With that extra time available, the family can now focus its efforts on growing the business—and ultimately creating new 24-karat pay problems for the future.

If you have read the above and you are not part of a family-owned and operated business, try applying the 4 principles within your business and with your Board. I am sure these principles are just as valid. Try it.

Wilkening & Company has advised family-owned businesses on matters of private and family-company compensation for over 3 decades. In addition to compensation, we also have experience with family-business succession, organizational effectiveness and Boards of Directors. If you have questions or challenges, call us at (847) 823-5090, or write at bob@wilkeningco.com.

Sales Planning for the Coming Year: Try the 1-Page Report

As the 3^rd Quarter draws to a close we suggest you begin to think about key-account planning for the coming year. Begin planning a few months early this year with this 2-step exercise.

First, identify your top major accounts over the past couple years. Make your own rules regarding how to define them, but we suggest you start with those top accounts that comprise (say) 90% of your sales volume. I suspect that list will contain 50-100 accounts or customers. Make a simple account list on a spreadsheet and collect some data on each, e.g. :

• Annual sales volume (that’s obvious);
• Annual gross profit (or more granular profit contribution, if available);
• Annual sales per order or release;
• Annual shipments made;
• Annual sales call required; and
• ……any other performance metric you think is applicable.

When completed, sort your list by profit (column #2). This is the 1-page Report
Then, hand the 1-page Report to your top sales executive and ask them to look at the results and seek obvious situations where improvements can be made (e.g., more high-profit sales, higher pricing, less company resources applied, too many small orders written, etc.).
Second, request a 2-part response from the sales team.

1. Ask your top sales executive to identify and report on the top-5 selling (and profit improvement) opportunities revealed in the report and briefly describe what actions or investments are required (report within 2 weeks); and
2. Ask your top sales executive to then ask their reps and managers to look at their individual accounts on the report and respond with a 12-month plan to grab the opportunities they see (say, report within 6 weeks).

Your 1-page Report can go a long way to helping identify opportunities to improve company profits in the coming year, and will surely form the basis for 2013 account and territory planning. You should be able get a nice ROI for a few hours of analysis.

Why are Compensation Issues in a Family Business Different?

Yes, pay issues in family-owned and operated businesses are different and in many ways more difficult to address than those found in other private (or investor-owned) companies. What creates this difference? In our experience there are several reasons that explain these differences. We have summarized five below.

As you read on, see if the same situations or explanations we describe exist in your business or within others you know.

1. There is A Lack of Detachment.--As a family-employee (or other stakeholder [i.e.: a company employee, company shareholder, to-be shareholder, an in law or other interested party]) in a family-owned and operated enterprise; you can never get away from the “office”. Issues such as differences of opinion regarding pay and approach will follow you home and anywhere else family members gather. As we often say: Be ready to talk about it over Thanksgiving dinner.
   
   
2. Pay decisions & Value are Seen Only Through Your “Filters.”—Compensation decisions within a family business are often considered and made by and amongst members of the same generation. These same family members have generally grown up together and have had many years to form impressions about the value or worth of other siblings (or cousins). With these same predetermined values and feelings in play, a sibling may now be asked to agree to pay a brother, sister or cousin substantially more or less than others—or themselves—based on the job each do. Why are they worth more than me? This is often a hard question to answer when your impressions and history (your filters) says otherwise.
   
   
3. Family businesses are often the great levelers of family-member talent and ability.—Some family members may institutionally earn more within the family enterprise than they could ever earn in the outside marketplace—based upon skill, experience and ability. And, the reverse can also be true. For example, in some cases all family employees may be paid the same—in spite of the fact that one is the CEO and another is a Maintenance Supervisor. Hence when the subject turns to the “real” value of each job (and it always does), generally at least ½ of family employees will want to stop that discussion immediately—for obvious reasons.
   
   
4. It is a democracy, isn’t it?—As family-owned and operated businesses mature and grow through succeeding generations, the number of family stakeholders (shareholders and other interested parties) can grow to a relatively large number. By the time the business reaches its 4th generation, it can have as many as 30 stakeholders—of which only a few typically work within the business.
   
   Consequently, many of these stakeholders will have little or no ownership stake in the company. Yet, every family stakeholder has an opinion regarding pay for family-members, and many will not hesitate to state it. These opinions may either be anchored in fact or firmly rooted in opinion or personal circumstance. “What do you mean you are going to pay the CEO $200,000 in salary per year? I hear that the job is worth half of that! I strongly object.” (Really means: Wish I could make $200,000 per year.)
   
   In a family businesses—unlike in many others—there can be many chefs wandering about the kitchen on the matters of compensation. Some will be helpful and informed, others will not—but they will have an opinion that cannot be ignored. Just like in a democracy.
   
   
5. Wait, whose money is that anyway?—Family business often have very complex and intersecting flows of pay, returns and cash distributions.  Some stakeholders (particularly those who are not employees) see all cash withdrawn from the business as compensation to be a reduction in possible reinvested capital and a possible corresponding reduction in firm value.
   
   Hence stakeholder pay decisions can be viewed as decisions to award cash value to a family-employee before other stakeholders can liquidate their ownership (or would-be-ownership) interests in the company or collect other ownership distributions, like dividends.
   
   Some would argue that while some family members are focusing on the health and growth of the business, others are trying to preserve the current value of the enterprise (as if it were an estate). Such tension can be constructive particularly in trying to prevent de-capitalizing the enterprise through compensation. While many companies face similar questions, this debate can be vivid in a family-owned business—and must be carefully managed within a family-stakeholder “democratic culture.”

In all of the above we have neglected to adequately mention the pervasive influence of “Mom and Dad” upon pay decisions in a family business. It is often their values and direction (implicit or not) that establish the company’s pay strategy and influence all pay decisions for the next generation, or longer. And, their values & direction are seldom challenged while they are active within the enterprise. We have seen this situation result in a frustrated (and self-enforced) silence as pay differences and opinions amongst stakeholders “boil” just below the surface. It is not unusual to also encounter this “back story” when the subject of compensation arises over the dinner table.

All or some of the above generally combine to make the management of compensation in family-owned and operated businesses different and potentially more difficult and challenging than in other firms. This challenge and difficulty can often lead to trouble within the company and family, unless effectively addressed. What should a company and family do?

Wilkening & Company has developed principles for effectively managing pay in family-owned and operated businesses based upon decades of experience addressing these challenges. We will outline those principles for you in next month’s E-Notes.

Wilkening & Company has advised family-owned businesses on matters of private and family-company
compensation for over 3 decades. In addition to compensation, we also have experience with family business succession, organizational effectiveness and Boards of Directors. If you have questions or
challenges, call us at (847) 823-5090, or write at bob@wilkeningco.com.

What to do when your commission plan is losing its “pop”

In our June 2012 edition of E-Notes we discussed the use of sales commission plans for the sales force and how to determine when such a simple pay arrangement best fits your sales process and sales force.

In last month’s article we suggested that if you found or believed that your current sales commission plan was no longer effective in meeting the needs of the company, there were proven solutions available to help restore its effectiveness.

As earlier stated, a commission plan is generally most effective within a new and evolving company or a sales channel where the seller is the primary selling influence and the company’s strategy leans heavily to the rapid growth of its market share. The risk of the market and the selling process make (and have historically made) the commission plan an ideal pay solution for both seller and company.

But, as a market or company matures and the sales process changes accordingly, a commission pay plan may lose its effectiveness. The risk and return relationship will usually lose its attractiveness to both seller and company—while the company sees either a slowing of sales growth or an erosion of profit margins. Further, the seller who truly desires the risk and return of a commission plan may have already moved on to greener pastures. This is a common situation.

If you suspect that you are in that situation and need to do something to improve your commission plan, we have found that there are generally two types of “in-place” solutions you can employ—short of throwing out the whole plan and starting over. Let’s discuss each.

1. If you are seeing your profit margins erode and your commission sales force cannot seem to control it, try the simple solution of changing the primary commission metric from sales volume to profit contribution (dollars). You will have to adjust the commission rate accordingly (upward) for fairness, but suddenly the discussion will change from only sales calls to pricing and profit margins.
   
   Of course some companies do not want to share their profit margins with the sales force (or anyone else) as this may be considered to be a competitive advantage. If that is true in your case (and reconsideration is not possible), use (for example) three (3) separate commission rates that vary based upon profitability.  Now some would ask: how many commission rates are too many? I use three as an example and would not personally advise any more for simplicity. I once saw a client who previously adopted such a multi-rate approach and was using twelve (yes, 12) different rates. Needless to say, that was too many.
   
   
2. If you are finding your sales growth is diminishing and your sales force is not really concerned (and remains pretty well and steadily paid—also not an unusual occurrence), try introducing a simple goal-based bonus or incentive in parallel with sales commissions.
   
   One thing lacking in the typical sales commission plan is an annual expectation of performance established by the company for the seller. This is a real limitation of commissions and sales growth may suffer. To address this, introduce a simple bonus or incentive, with the commission. It could work something like this:
   
   
   1. Pay a commission on every dollar of annual revenue as before but do so at a lower rate—at (say) one-half or two-thirds of the “old” commission rate.
   2. Then, establish an annual bonus that pays out incremental cash amounts based upon performance versus the company’s annual expectation of performance or achievement for sales volume.

As a general rule, pay the seller less (in combined new commission and bonus) than they would currently have earned under today’s commission plan if they fail to achieve the company’s annual revenue expectation. Pay the seller more than the current plan if they meet and exceed that expectation.

If you find yourself questioning the effectiveness of your current commission plan, it is likely something is wrong and remedial action needs to be considered. The two alternatives that we have offered are both proven and reliable ways for a company to improve profitability and grow sales volume in a commission-pay environment—without throwing out the entirety of the old plan.

If you like our ideas simulate one or both “in shadow” (calculating results only on paper with no impact on real pay) with your current sales pay plan for the remainder of the year. See who would make more or less and decide in the 4th Quarter whether a pay-plan design change would improve your sales effectiveness and performance for the coming year.

Try it. I bet you will be pleasantly surprised at the results.

Wilkening & Company has designed and implemented scores of sales-compensation plans for clients whose commission plan had lost their “pop.” Call or write and we would be glad to share our experiences and solutions such as our tested Bump & Run sales compensation system.

The Affordable Care Act (ACA) Survives its Supreme Court Challenge. What to do next?

This is the fifth (5th) article Wilkening & Company has published on the impact of the Affordable Care Act (ACA) upon businesses and their employees. We have written on the subject as recently as April 2012. A directory of (and links to) our articles is included at the conclusion of this note for your convenience.

When we last wrote on ACA it was our opinion that no matter what the outcome of the Supreme Court decision on its constitutional merits, three things were evident to us— 

1. Some portions of the law—primarily guaranteed coverage without consideration for pre-existing conditions—would survive in some form, even if ACA were stricken in its current form.
2. Most employees have no idea what is written in the law (nor do many employers) and will likely be shocked when companies begin to take actions directed by or suggested in the law—like to either continue to insure your employees or pay some unknown 3rd party to do it.
3. If an employer is prepared for the inevitable change that is coming they will be better off and will likely save themselves a bunch of money, plus avoid unneeded people & compliance trouble.

With the recent Supreme Court’s decision upholding the constitutionality of ACA, many believe that the future of the law now depends upon the result of the November presidential election. Some are taking a wait-and-see approach that surely demonstrates due caution and economy of action.

We continue to feel somewhat differently. While no one yet knows the ultimate outcome and ACA’s fate, we believe it is best to begin planning for what could (and likely will) happen in the next 12 months—without regard for the election’s result. It is just prudent and requires a reasonable investment of effort or foresight.

For example for the year ending December 31st, 2012, ACA requires employers report the cost of employer-sponsored health coverage on Form W-2.But it will not yet be taxable to the employee. (This is only one of nearly 4 pages of ACA summary regulations published by the IRS alone.) You are likely going to have to do W-2 reporting without regard to who wins in November, for no politician will be able to resist knowing the future tax-revenue potential of this currently hidden benefit and substantial chunk of untaxed employee compensation.

In April, we suggested that employers appoint a company Executive-in-Charge (EIC) for employee health-care coverage and change. We recommended the EIC be appointed promptly and the CEO and Board be briefed by the EIC in the 3rd and 4th Quarters regarding what compliance efforts (e.g., W-2’s) and healthcare market planning are required and prudent. [For more on the proposed role of the EIC you may reread our April 2012 E-Notes]

This action may be more important today, than when we wrote it in April. The more we research ACA the clearer it becomes that there is no single prescription for what an employer must do to comply with the law and assure the best outcome for the employer and its employees. This is generally true because: 1.) Provisions of the law & IRS code cleverly parse and segment employers and their requirements, and 2.) The unique economics or demographics of each company may require very different responses. Hence, your compliance & health coverage (short- and long-term) action plans will be quite specific and uniquely tailored to your needs.

One size will likely not fit all, and work will be needed to investigate options. Appointing your Executive-in-Charge is the first step in making informed decisions and getting best control of future employee healthcare costs.

And if Washington decides to throw out ACA (as written) on December 1st, you have not expended much effort and will surely know a lot more about what it will take to successfully operate in future employee-healthcare insurance markets. You will also have taken a step to show your employees the company is taking action on their behalf in these “unsettling” times—that in itself is an added employee benefit.

Wilkening & Company E-Notes previous articles on the Affordable Care Act—    April 2012          June 2011    August 2010       June 2010

If you do not have an executive assigned to ACA for your company, I suggest you appoint one. If you are the CEO and you figure that is your job, do not underestimate the time you will need to spend on this time-consuming and complicated task.

And whether agree with our 2012 approach to ACA or not, spend the time to become knowledgeable of the issues and prepared to act before year end.

Wilkening & Company has assembled a respected team of tax, legal and risk-management experts to help clients navigate the uncertain waters known as ACA and to help them reach a cost effective and complaint outcome. We are trying to become a “go-to” resource in these trying & uncertain times. If you are concerned about what actions to take next, feel free to call or write Wilkening & Company at (847) 823-5090, bob@wilkeningco.com.

Revisiting the tried and true—commissions for the sales force

Commission-based compensation plans for sales forces have been around forever in one form or another. Historically, sales pay has been synonymous with commissions.

Over the years, commission plans have proved to be an effective approach for paying and motivating a specific type of sales force and have become the staple of such industries as insurance, real estate, financial services and transactional deal making that can range from autos to entire companies.

A commission plan is the simplest form of variable pay. In a commission plan, the sellers (generally) get a set portion of the deal at the time of closing or delivery—say 5% of the sale.

From an administrative & communication perspective, it is also the simplest pay arrangement to manage—for if you know the amount of the transaction, you also know the amount of the commission to be paid.
We are often asked by clients whether a commission arrangement is right for their sales process and sales force. The answer to that inquiry will vary. Let’s look at when a commission plan is effective and when it is not. And then we will provide you with some ideas on how to assess the effectiveness of your current commission plan.

When is a sales commission plan effective? The simple answer is when it works. But, when do they work? It is our experience that a sales commission plan will be most effective when:

• The sales representative is the primary seller and influencer of the transaction and they are the company’s unique linkage with the client. In short, there is a straight line from seller to customer.
• The company is in a sales growth environment and has the strategic vision (and ability) to rapidly gain market share.
• The product-line offering is simple and most products or services are equally profitable or valuable to the company. There is little consideration or thinking about what should be sold, or what should not—based upon profit contribution.
• The seller is simply that—a seller. They do not spend much (if any) of their time servicing the product or providing logistics support to the client organization.

The ideal place for a commission plan is generally in a new or evolving company where the sellers assume a “missionary” role positioning a new product into the market or taking business (and market share) from competitors. In such a case, they are often asked to rapidly gain market share from new clients. They are both deal maker and closer. In short, if your sales process and product offering are both pretty simple and straightforward (direct), a commission plan will probably work pretty well—with some exceptions.

Conversely, sales-commission plans are less effective in situations that are markedly different than (or in contradiction to) the above conditions. For example:

• The seller is an integral part of a sales team and closes deals only through the collaboration of other support resources;
• The company is in a declining growth or stagnant market where instead of gaining market share, its share may be flat or the company is losing share—price has likely become king;
• The company has a moderately complex product line with wide differences in profit contribution between one product and the next. The company cares very much which products or services the sales force encourages its clients to buy—or not buy; and
• The seller must spend much of their time fixing service and delivery problems to the exclusion of making sales calls on current or new accounts.

What we often find is that companies rightly adopt commission plans for their sales force when they are in a start-up situation and/or are trying to rapidly grow share of market. Then as the business and market matures and the motivational effectiveness of their commission arrangements (from the perspective of the company) diminishes, they stubbornly stay with their old commission plans. Then what we often hear is: Why can’t we get our sales force interested in growing the business (and their territories)?

Why has that commission plan become less motivating and effective? The most common reason we have observed is because a commission plan provides decreasing sales-force motivation to grow sales once the territory or portfolio has reached a certain critical mass where the sales rep is comfortable with their commission earnings. For example if a sales rep earns 5% of their $2 Million book of business and they are very comfortable in being paid their $100,000, it is unlikely that the company will be capable of motivating the sales rep with its commission plan to add another $1 Million in sales to their territory—or any amount much higher than the annual price increase. Of course realistically as the company matures and evolves, it is also very unlikely that high annual growth rates can be achieved without major changes in products, sales process or the marketplace itself.

Some would say that a true deal-maker will always be hungry to earn increasingly more money, and that is generally true. But, the true deal makers are very likely gone by the time the company has passed it initial growth phase or is beginning to reach its maturity. The pay arrangements that once turned on the deal maker may no longer drive different-types of sellers with a less-entrepreneurial profile or make up. That legacy $100,000 commission check is likely enough to keep them quite happy—“And who needs to go the extra mile or make the extra sales call, anyway?”

Is your sales-commission plan effective? If you now employ a sales commission plan, consider asking the following 5 questions to find out.

• Does your company have the realistic potential to grow sales well in excess of annual price-increase levels—i.e., market share is there for the taking? (If you say you cannot answer that question, you should rapidly take steps to do so!)
• Is your sales force consistently growing annual sales well in excess of price-increase levels—i.e., they are grabbing that available market share?
• Is your sales force regularly making in excess of 15% of their annual sales calls on new accounts or regarding new-business matters?
• Does the compensation paid to your different sales representatives vary widely amongst reps year in and year out? [Notwithstanding the perpetual standouts]
• Do the members of your sales force generally appear dissatisfied with current pay levels and are vocally and constantly seeking ways to realistically increase their earnings—i.e., they are pushing not just whining?

If you can answer yes to at least 4 of the 5 above questions, it is likely that your current commission plan remains effective and is a good fit for your current sales force & process. If your score is lower, we would suggest that you start considering alternative methods for paying & motivating the sales force.

What are those alternatives? Next month we will review reliable ways and methods for companies to improve the effectiveness of current sales pay plans when your commission plan is losing its “pop.” Tune in.

Wilkening & Company has assisted clients with the design of effective sales pay systems for since it was founded in 1989. Since that time, we have designed over 100 sales force and sales management compensation systems.

Want An Effective Business Strategy? Start by Asking the Implementers

In June, the consulting firm of McKinsey & Company published an article in its quarterly email newsletter (McKinsey Quarterly) entitled: The Social Side of Strategy. It described how an increasing number of companies have discovered the value of opening their strategic planning process to include the broader input of the employees and groups who will actually implement changes specified in the plan.

This is a major (and logical) shift in the historic strategic management process used by companies (and oft recommended by business-strategy consultants) for the last 4 decades. In our experience, past business strategies were only created based upon vast bodies of market-research data followed by the deliberation, consensus and input of only top company executives. They were indeed created in rarified air far away from the folks who would ultimately make the new (or old) strategy work.

Wilkening & Company has always taken (and advised clients to use) a somewhat different approach to the creation of strategic plans and has written about this in past editions of Corner Office Gazette E-Notes. Clearly, McKinsey & Company is now also following our lead on this subject (it’s about time!).

In the September 2010 edition of E-Notes (which includes the second of a 3-part series on the subject of strategic planning), we discuss techniques & methods for effectively gathering the input (and direction) of diverse groups of employees during the strategic planning process. In our 2010 article, we also discuss why such a process is valuable (and also helps manage your risk). Part of that discussion is reprinted below.

“It is often the case that a very select group of executives and “experts” participate in a company’s strategic planning process. It is seen as a high-level exercise, and indeed it is. However, it can become elitist in nature and may lose touch with the company’s most important assets—its managers and employees. We call them the “fingertips” of the company. Ignore your sense of touch at your own peril.” (Wilkening & Company E-Notes September, 2010)

Are you about to renew or create a new strategic plan for your company? Consider Wilkening & Company’s proven broad-based approach to research and data gathering. To learn more of the how-to’s, reread our article of September of 2010 entitled: Employee Participation in your Strategic Planning Process. And remember; ignore your sense of touch at your own peril.

Do you need both long-term and annual incentive plans for your executive team?

But first for the sake of definition, what is the difference between a long-term and an annual incentive plan? 

An annual incentive plan is a cash-based incentive or bonus plan that pays an executive (or other employee) for annual individual, group or enterprise performance. The value of the reward is generally based upon annual performance metrics and frequently measures results versus a goal or other standard. This is a concept and tool broadly applied in business.

Long-term incentive plans are less commonly used and represent a cash- or equity-based incentive or bonus that pays an executive for multi-year enterprise performance. The value of the reward is generally based upon the creation of measured enterprise value or achievement of pre-defined strategic objectives. Long-term incentives are used almost exclusively for senior executives, and then on a very selective basis. Stock options or restricted stock are common reward vehicles for publically-held firms, but most (or nearly all) privately-owned companies settle their plans in cash.

As noted above, the use of both types of incentives will vary, but typically annual incentives are nearly universally offered to executives. Long-term incentives are not. Look at the following table to see the differences amongst four typical senior-level executive positions. It shows differences in the frequency of use for reporting organizations taken from a recent Towers-Watson Data Services survey.

Three observations are obvious when you look at the above data:

• 80-90% of executives receive annual incentives (or have the opportunity to earn them).
• Long-term incentives are not frequently offered or paid by smaller companies (under 1,000 employees), but usage increases rapidly as company size grows.
• Long-term incentives are less frequently offered or paid (by about 20% less) as the size and responsibility of the executive job is reduced from (say) CEO to a Vice President, in any sized company. 

In companies over 5,000 employees, it is very likely an executive will participate in an annual incentive plan and the majority (50-90% of participants) will have both an annual and long-term incentive. If you are the CEO, participation in both plans is nearly certain.

Why do smaller companies hesitate to use long-term incentives? In our experience, most of these firms are privately owned and the mere mention of terms like “phantom-stock” or “equity” will bring an immediate halt to any discussion of executive incentives (and groan from the owners). I have been in some of these meetings.

What is done by other companies in the marketplace provides an interesting benchmark for decision making, but do you need both a long-term and annual incentive for your executive team? Let’s briefly look at each in turn.

The case for paying a performance-based annual incentive for executives (and other key employees) has been long made. It is an effective and tested way to focus the attention of the executive team on the annual goals of the company and helps constantly reinforce its strategy. You should be using annual incentives for your executives. But what about long-term incentives, are they also needed?

That depends. Try this test to see. If you can answer the following four questions in the affirmative, generally you should also be considering a long-term incentive plan for the “pivotal” members of your executive team.

1. Are there one or more members of your current executive team that are essential to the company over the next 5-10 years to assure success?
2. Do you need to recruit key executive talent in a marketplace where competitors are offering long-term incentives in various formats like stock options?
3. Can shareholders and other owners create a case for increasing shareholder value that involves “sharing” equity or future cash profits with the executive team and (in exchange) still coming out well ahead in terms of the increased value of their holdings? [i.e. - a value proposition]
4. Can key members of your executive team be seen as having the ability to uniquely drive growth in company value? [How? Who?]

If your answer to all (or some) of the above questions is “yes”, you should be considering the addition of a long-term incentive plan. Unlike the market, the size of your company will have little to do with your ultimate decision. Smaller companies may also (and often do) apply.

It has been our experience that a well-designed long-term incentive plan can begin driving success and performance in as little as a single year and instantly put executives on the “same page” with owners in focusing on increasing shareholder value.

Looking for a way to sleep better at night? Then delegate ownership’s value-creation problems to the executive team with a long-term incentive plan, and get some rest.

Talk With Your Sales Force

Each year we spend a half-day at the University of Wisconsin speaking with senior sales leaders about the principles and techniques involved with the design of effective sales-compensation plans. Invariably, the subject will turn to an analysis and critique of the current sales-compensation methods used by some of the participants—that they volunteer or describe. It is usually a pretty interactive and fun session with much give and take.

When the session concludes I provide the participants with a short list of next steps or questions to address. They are designed to help each apply the lessons learned in the session to the particular sales-pay challenges their company may face. One question asks them to assess whether their sales-pay plan is working, or not—as measured versus criteria discussed during the session. And to start that process, we strongly suggest they directly ask that question of their sales force. This is a technique and practice we have employed with success for the last 30 years. Going directly to the source makes a lot of sense to us and usually gives a pretty unvarnished view of what is going on.

But, it is our experience that many CEOs and sales leaders do not speak with the members of their sales force very often—with the exception of reviewing sales results or unwinding (often messy) customer problems. We think this is a mistake and a great opportunity lost. Further, it can leave company leadership blind to the needs of the sales force and the market, and can result in unpleasant surprises.

Most CEOs or senior sales executives will state they do not have enough time in their busy schedule to spend time directly with the sales force—unless there is a “problem.” Well, problems can come in many flavors and colors and the ones you do not know about are generally the most dangerous. Interested? You should be. Try this 3-step plan:

1. Schedule time out of your office and with the members of you sales team. Try planning to see or visit with 2-3 sales reps per month on their turf. You will routinely schedule 2-3 customer visits each month, so why not schedule equal time to be with the sales reps who call upon those very same customers every day?
2. Leave agendas and spreadsheets back in the office. Spend a morning making a sales call or two together, have coffee together and answer a customer question or two together. Make yourself part of the sales force for a day. Routine discussions of goals and performance should be off limits. Now be sure to schedule (announce) your visit well in advance, but even so, it will likely take a CEO or top sales executive about an hour to calm the rep down. You probably should plan to drive for the first couple of hours for safety sake.
3. Use your lunch effectively by having an open chat with the employee. Tell them your plans for the company and ask for their input. Also use this brief time to ask them to open up about both current market forces and those support processes that should be in place to make them a more effective and motivated seller. Ask questions like this:
1. What is getting in the way of you closing more business?
2. What are the competitors up to?
3. What are customers saying about us these days?
4. Is your sales compensation plan fair? What do you think should be changed in the future?
5. And finally, do you have any questions for me? 

Be careful not to make commitments or promises you cannot keep, but be sure to offer an open door and open ear for future dialogue. And, never “reveal a source.” If something needs an answer, call them back within a week—personally.

The cost of the above is a couple of days a month out of the office and on the road. The value is being able to get out in front of serious trouble—before it becomes serious trouble.

Try it for the rest of the year. Once you get into the rhythm and get some results you will not only likely continue into the future but also consider expanding the practice across the company with other top executives, if not already done.

In the end we do not care how you do it, but do get out of your office and into the field with your frontline sellers. You will be happy you did. And, so will they.

Wilkening & Company has advised clients regarding the design and implementation of long-term incentive &sales compensation plans for 30 years. Our practice has addressed client challenges in businesses ranging from manufacturing and industrial distribution to private equity (and financial services).

Implications for the Future of the Affordable Care Act as the Supreme Court Considers Its Fate

There has been much speculation during the last month regarding how the US Supreme Court will ultimately rule on the constitutionality and survival of the 2010 Affordable Care Act (ACA).  At issue is the requirement for all citizens to “buy” healthcare insurance (and consequently be included in the experience pool), and the overall survival of the law—as written—if citizens are not compelled to participate in the plan by “buying” insurance. 

We will not speculate on Supreme Court decisions or intent, but when their decision is announced there will surely be a predictable outcry from one side or the other. When that smoke clears, what should an employer do? We say focus upon 3 permanent market changes or trends that ACA has now created—win or lose in court. In fact, start doing so now. Let’s talk about each.

Some new rights (entitlements) will not go away, so you must plan to deal with them going forward.

One such prominent example will be the right to insurance coverage for citizens or potential employees with pre-existing conditions without denial of coverage.  This was one of the foundational reasons stated for the passage of ACA.

Why do I think this provision will stick around? Let me tell you a story. A friend has a 3-year old grandson who was born with a chronic disease that will need attention and intervention for the remainder of his life. He currently has healthcare coverage through a parent’s group insurance plan offered by a large public institution. But, if his parent were to lose their job, try to move to another insurance plan or contemplate starting their own business, their son’s condition could create coverage difficulty in the pre-ACA world.  Not so with ACA. In theory, he will always have healthcare coverage.

My friend does not care about the rest of ACA, nor does she care about what ACA opponents think—all she knows is that her grandson will now (under ACA) never lack for needed medical care because of resources or coverage. There are a lot of grandparents and parents out there with similar stories and I think there will be a massive uproar if someone (anyone) tries to rescind this promised benefit. When she first told me her story last year, it was clear to me that an unstoppable force had been loosed.

What does a company do? This can be a complex question. The correct answer will depend upon your current health policy and coverage practices. However, we believe that most employers will not be impacted directly by a pre-existing condition mandate or requirement. This is because we believe many, if not most, employers will employee the talent they require and their healthcare insurance coverage will be adapted to meet the needs and requirements of hiring.

The pre-existing condition issue will more likely impact self-employed professionals or workers or the currently uninsured. In that case, the Federal government will become the insurer (payer) of last resort. This will also probably impact very difficult and uninsurable cases an employer (providing group insurance coverage) may encounter. But someone must pay for this last-resort coverage. It will surely result in higher healthcare costs for everyone who pays for insurance or coverage through a variety of premiums, fees, fines or taxes. You can be sure that your year-over-year healthcare costs will rapidly increase. How do you plan to deal with this threat to profit and cash flow?

Employees do not know what is going on with ACA.

I have sat through a couple of meetings and seminars listening (predominately) to lawyers explain the impact of ACA on employers and its recent legal challenges. During those sessions I have never heard anyone speak about its impact upon employees. In general, I believe that all of the dialogue about ACA has predominately ignored its prime stated recipient—the employee, or other users of the healthcare system. Why? In short, the decisions will generally be made well above their pay grades. Ah yes, another top-down solution.

As a result, we believe most employees and users are in the dark about ACA and what is about to happen to them. We further believe this provides an opportunity for your company to:

• Reach out to your employees and educate them about ACA,
  
• Tell them what your company plans to do about it; and
  
• Talk about what they can expect to see in the next 1-2 years.
  

You may even want to find a way to involve them in company health-insurance decision making, once your requirements and course(s) of action become clearer this summer.


As an employer, ACA may create an opportunity for employer and employee to form a stronger relationship. What a novel idea and unintended consequence.

Get out in front of THE inevitable change.

While the future of ACA remains unclear at this writing, we believe that parts and select benefits will survive and become part of healthcare landscape and permanently impact the traditional relationship between employer and employee. As mentioned above, we would start by accepting the inevitability of healthcare change and the fact that it will impact your company in the next 1-2 years. But how can you get out in front of an outcome that is unknown?

A good way to do this is by using a proactive and focused approach to the issue. We suggest that you appoint a company Executive-In-Charge (EIC) for employee-healthcare coverage and change. You can make it a top Finance or HR executive, or you might also select a top operating or business-development executive to provide a 3rd-party perspective to this more traditional Finance & HR issue.

What should the EIC do first? We would begin by creating a company ACA impact statement and a 5-year supporting strategy to deal with this impact by October 31^st of this year, or within 120 days after the Supreme Court’s decision. This will include tasking your current health insurance supplier and their broker with providing an ACA-compliant and cost-effective solution for 2012-2013.  [i.e.: What will the company have to do? What options exist?]

Then the EIC should prepare an implementation plan to support the above strategy by December 31^st including steps to communicate with all of your employees and engage them in the change. Again, this is a great opportunity to help the employee get through this potentially tough transition.

Lastly, the EIC and the top HR executive should create a report for the CEO and Board before yearend regarding the impact of ACA on current company compensation and benefit practices and costs. Companies must recognize that the cost of compensation and healthcare benefits may be increasingly coming out of the same pocket and the distinction between the two will be blurred in the future. You will likely have new choices to consider.

The above prescription is based on what we believe are the inevitable changes and impacts that ACA is going to cause for employer (and employee)—win or lose in the Supreme Court this summer. If you plan ahead and do not become a victim of events—as we believe many will—you can greatly benefit your business and its employees.

If you like to add to or expand upon our observations and prescriptions, please contact us. I would be glad to share other ACA ideas in future articles. I cannot think of a more important issue for businesses to address this coming year. And, we will continue to follow this issue for our readers.

How Frequently Should Company Pay Practices Be Compared to The Market?

How often should a company compare its current pay practices to the market? This is generally called market pricing.

I am often asked this question by clients. The answer to the question will generally be unique to the characteristics of the jobs in question and needs of the company. Two primary factors will normally determine a market-pricing action plan—

• The importance of the job to the success of the organization; and
• Competitive pressure and demand for job incumbents that creates a higher-than-normal job attraction and retention risk.

We have recently prepared an example of two market-pricing alternatives for a client. This example is shown in the following chart. We feel both alternatives and methods can be effective.

Chart #1: Market-Pricing Frequency Alternatives

Organizational Levels	Alternative 1	Alternative 2	Comment
Chief Executive	Annual review	Annual review	Often a Board requirement
Other executives or officers	Annual review	Review every 2nd year	New positions market priced as added
Managerial & Professional	Review every 3rd year	Market price 25% of your job titles every year for 4 years	“Hot-skill” jobs market priced annually
White Collar Exempt	Review every 5th year		Job class pay often quite stable and most predictable
White Collar Nonexempt	Review every 5th year
Blue Collar Nonexempt	Review every 5th year

The above chart suggests that the CEO position should be benchmarked most frequently closely followed by other top executives or officers. We also generally reserve annual benchmarking treatment for jobs or job families that are believed to be in a “hot-skills” category. Then the company should market-price the remainder of its jobs in various manners over a span of 4-5 years. We suggest less frequent benchmarking for lower-level exempt or nonexempt positions because of the relative pricing stability of these jobs in the market.

On the other hand I have two recent clients that have taken a totally different (and complete sweep) approach to job pricing. The first is a large firm and it prices all non-contract exempt and nonexempt positions each year. The second is a smaller firm that also prices all positions at one time, but does so every 5+ years.

So there are many alternatives to effective market pricing.  However, we have generally found that the more jobs that a company market prices at one time (say in a single year), the more outside resource and assistance the company will need to retain.

A more evenly-paced market pricing strategy can be accomplished using more internal company resources and limited and focused assistance from outside advisors. On the other hand, it may cost you a bit more in survey expense over time when purchasing market data.

In summary, Wilkening & Company always believes it is best to achieve two simple goals in a market-pricing strategy—

• Stay on top of your senior and “hot” jobs by checking their pay market annually; and then
  
• Check the market for a different portion of your jobs each year to keep your skills and processes sharp, and help avoid market surprises—often learned the hard way.

If your goal is to attract and retain the best employees, this approach should help give you a foundation to do so.

Wilkening & Company has helped many clients market price the jobs within their organizations. In doing so, we have also employed a unique and reliable approach to developing cost-effective and meaningful job and compensation structures—from CEO to blue-collar nonexempt. Call or write and we would be glad to discuss how to best price and structure the jobs within your organization. (847) 823-5090.

Managing the highly-successful sales team

How do you know a highly successful sales team when you see it? Is yours successful?

Most would start with using a tried & true benchmark:  “Did most members of the sales force meet or exceed quota?” If the answer is yes it is a success story and surely the company will benefit. Who could disagree?

Now, some CEOs and sales executives might think twice about trying to tamper with such success and so they often leave hands off of a successful sales force and its sellers. We think this is a missed opportunity, and a big mistake.

How should such a successful sales force be managed? We believe that the best way to manage the successful sales force is just like managing any other sales force: seek out and implement continuous improvement in the areas of people and process. Let’s look at possible steps you can utilize to evaluate and continuously improve both, and build sustained success into the future.

People: It is unlikely that your sales force has become successful without some pretty high-quality sales representatives at the top. How can we leverage such assets? We would suggest a simple 3-step plan as a starting point:

1. Rank your sales representatives from top to bottom in terms of demonstrated ability and talent (I expect you or your top-sales executive can do this on the back of an envelope in about 5 minutes).Then, look at the top 1/3 of the sellers. What makes them successful? Is it their demonstrated sales-skills, product expertise experience in the industry, personality, account base and/or other factors? Is there a pattern? Sit down and look for one. When found (and it is there), consider how this information can help with future sales-force training and selection—and modify your current programs accordingly. We have found that the selection and development of sales talent is one of those rare areas where a $1 of investment can return $100.
2. Everyone (yes, everybody) gets a day of 3rd-party sales-skills training this year—including VP’s. Start with the assumption that your sales reps need to significantly improve their selling skills, and you will probably be pretty safe.
3. Pair up your top sellers (top 1/3) with your average sellers (middle 1/3)(one-on-one) in an in-house mentoring program where skills and experiences can be transferred. Let sales leadership (the VPs) figure out the details and success measures, but make sure the paired sellers spend at least two weeks together during the coming year. If some of your top sellers start to push back (and some will), take a closer look—is it the time required, or are they being misclassified at the top?

Process: Process is the collection of steps, systems or factors that combine as the underpinning to facilitate sales force or company success—actually meeting quota or goal is an end result and one metric of success.

To examine the health of your overall sales processes, develop and use a broad sales-effectiveness “dashboard,” to diagnose the foundations of your sales success (or lack of success) and seek opportunities for improvement.

Consider this a bit like a stress test for your local bank (or heart). Here are 7metrics or diagnostics you may want to apply:

• Look deeper into quota performance.  Examine total sales-force achievement versus quota or goal. If you find that some or many sales representatives achieve results of 125% (or more) of quota or goal consistently (year in and year out), there may be reason to suspect that your expectations do not reflect the true potential of the sales representative’s account base, the seller or both. It may be a good time to revisit goals and quotas.
• Look even deeper at the sales-results and quota spreadsheet. What is the distribution of performance achievement? If you find that some portion of your sellers are alternatively achieving quite low levels of performance (as a % of quota or goal), it could indicate that there may be great (and unhealthy) disparities in such factors as: fair assignment of accounts, fair construction of sales territories and account plans and or levels of sales-skill inventories amongst your sellers.
• Look at key account growth. Take the top accounts that comprise 90% of current sales volume (this is probably less than 100 of them) and then select the half of these that have the greatest potential to grow—you know who they are. How many have grown over last year by less than your annual price increases? If the answer is 50% or less, these accounts are likely not getting the attention they deserve—as a group. Someone ought to go out and talk to them promptly about their needs and expectations.
• Also, look for any customer/seller groups that clearly stand out as poor performers, and begin an inquiry to find out why this is true. It could potentially be anything, but as it now stands, their poor performance is robbing your bottom line.
• Remember the ranking of sales representatives in terms of general ability and talent that you did above? Pull out the back of that envelope again and ask this question: Do the top sellers also have the best results & performance? Logic says that should be directionally true. If not, there may be something standing in the way of their success, or they may need a prompt attitude or skill evaluation.
• Take the entire sales force and re-rank all sellers in terms of last-year’s annual sales bonus or commissions earned—top to bottom. Do the top 1/3 earn 100% more in bonus and commission than the second 1/3 (on average), and does the second 1/3 earn 100% more in bonus and commission than the bottom 1/3 (on average)? Again, that is a logical outcome to be expected. If not, it may indicate that your pay systems are not properly differentiating, driving, or rewarding higher levels of sales performance. An audit of the sales-pay system may be in order.
• Lastly, examine the sources of revenue and sales growth for the last 12 months—on an account-by-account basis. Does15% of your total sales volume come from new accounts—with which you did not do business last year? If not, your sales force is not likely developing enough new-account business, and will not adequately be able to replace lost accounts in the long (or short) run. History says that your company will lose a percentage of your accounts and sales volume to competitors each year. In some cases we have seen that that loss can exceed 10%. If you are not acting to replace these losses your company will surely begin to lose share of market.

Did your sales force pass its stress test? Hope so. If not, it is clear what must be done (and communicated) to improve results and secure continuing future success.

Start using these people development and process diagnostic tools with your sales force annually. Do not be afraid to ask for better results and to aggressively fix underlying sales processes, even when a successful sales force is involved. Challenge them (with facts) and they will respond. Try it!

And now for something completely different...

Recently, a friend who has an interest in a commercial property located in the Northwest suburbs of Chicago related the following story.

The property has 20 separate units or suites and about a dozen owners. The Board retains a property manager to handle all day-to-day operations. At 9:00 PM on a recent Saturday evening, the local police department called my friend (as President of the Board) and informed him that fire alarm had activated in one of the other owner's units and the police had also found the front door unlocked. There had been no damage or intrusion (other than the police). He was on site 10 minutes later.

After being satisfied that no harm was done and the alarm was an error, it was clear that the unit owner needed to be contacted so the property could be secured and doors locked. After immediately contacting the building manager, it was found that the needed contact information (telephone number) was in the wrong office or desk to be of any value. It was basically unavailable unless someone drove an hour to retrieve it. After an hour of sleuthing (and sitting in the suite for security purposes) my friend and the building manager were able (by pure chance) to find the needed contact information. The owner soon arrived with the needed keys. Apparently the building's emergency plan had failed when it was needed.

What lessons were learned by this Board and their manager? Four emerged.

• If you do not have access to owner contact information when and where you need it, you do not have any contact information.
• If you do not have the required codes or keys to locate or shut off an alarm system or open a door, your response team will be locked out or worse.
• If no one is clearly responsible of responding to and communicating with dispatch, police or fire personnel in an emergency, no one is in charge.
• Emergencies always happen at bad times—that is why they are called emergencies.

How can these lessons be applied to other circumstances (or, your company)? In our experience, three essential emergency response imperatives should be considered:

1. Appoint an emergency executive-in-charge and an alternate in their absence. All communications (or alarms) go across their desk. Police & fire call this person, first!
2. Be sure all needed phone numbers or alarm codes (the HOT LIST in our lexicon) are in the hands of the executive-in-charge and available for use and reference at all times—i.e.: at home on Saturday night at about 9:00 PM. Also be sure that the HOT LIST tells the reader where all keys can be found within 30 minutes, tops.
3. Be sure that two other officers always have copies of the HOT LIST on their person or within easy grasp at all times.

Do you have an emergency plan for your company or properties? Can you name your emergency executive-in-charge? If not, you know what you need to do.

If you think you have a pretty good emergency plan and structure, I recommend you test it periodically—start this coming Saturday night at about 9:00 PM. And, remember to keep your sense of humor.

“What is your compensation or reward strategy?”

If you cannot answer the above question in 120 words or less, you probably do not have one.

So what do we mean by a compensation strategy? Like any other strategy it is a direct statement of how your company plans to pay and reward its employees, both today and into the future. It typically will establish parameters or benchmarks like:

• Where on a measurable scale your company plans to pay employee salaries versus similar or select jobs or companies within the marketplace—usually stated as a relative position within the market (say 50th percentile*).
• What amounts (levels) of total annual compensation (salary plus bonus) is the company willing to pay its employees for various levels of achievement or performance—generally also stated as a relative position within in the marketplace.

Let me present an example of a recent client’s statement of compensation strategy. It is written in a way that any company stakeholder (owner, manager, employee or lender) can understand. Its objective is to provide a clear statement of pay objectives and principles. Our example does not include some of the nuances of executive compensation such as long-term incentives. This is often considered, and treated as, an additional leg to the compensation strategy. Our example:

The Specialty Division of ABC Industries, LLC will endeavor to pay all of its employees total annual cash compensation (salary plus annual bonuses) at the median (50th Percentile, or middle) of appropriate national or local market rates of pay for similar jobs in similar companies. If company or individual performance exceeds expectations and industry standards, higher levels of total annual cash compensation will be awarded. The Division will help fulfill its total annual cash compensation strategy by targeting average salaries for all employees at the median (50th Percentile, or middle) of appropriate national and local market rates of pay for similar jobs in similar companies. However, salaries may be adjusted versus market levels based upon experience, competency and sustained performance. (120 words).

It is also quite possible (and common) that a company may choose to pay a premium to employees or candidates with unique or prized experience or skills. Examples of this are: key executives, IT professionals (more of a legacy than a requirement in today’s markets) or holders of special scientific & technical credentials. For example, I once saw a company pay premium compensation for experienced ceramics engineers. These premiums are, or should be, very select. A company can also make a decision to offer discounted pay to some less-prized skills, but I would not recommend it in terms of a strategy, but rather as a temporary market reaction.

Notice that no mention has been made of employee benefits. I thought of adding a line on employee benefits' competitiveness in the example but realized how difficult it may soon become to benchmark or measure benefit-plan fairness or competitiveness with the advent of (evolution to) The Patient Protection and Affordable Care Act.

Some would argue that benefits are a key part of employee compensation and should be considered in your reward strategy, I would agree. However, I believe that the long-standing relationships between pay and benefits are now undergoing a major shift (right under our feet), and until a company decides where employee benefits will fit into its future pay structure and calculus, they should endeavor to be “fair” and commit nothing else to writing in 2012. [Refer to our June 2011 edition of the Corner Office Gazette to read our most recent article regarding The Patient Protection and Affordable Care Act.]

A compensation strategy is often much like a company’s overall business strategy when you take a look at its benefits. Let’s examine four.

• Benchmarks—a compensation strategy provides you with benchmarks against which you can measure success or progress. For example if you want your employees to be paid at the median (or middle) of the market, you can readily determine where you stand versus that benchmark, you can then make appropriate plans to adjust actual pay practices, as required. It is a bit like an annual or periodic audit.
• Competitiveness (“Keeping up with the Jones”)—if you know (anticipate) that market pay will increase by a certain amount in the coming year you know what you have to do and budget to achieve or maintain your pay strategy and competiveness. Most of you see market forecasts for the coming-year each spring offered by consulting firms and other research sources. If you do not heed these forecasts, your company could gradually lose its competitive edge in the talent market.
• Guidance with annual bonus plan design—we always believe that it is important to design bonus plans to pay out a “competitive amount” when the participant meets or exceeds the company’s expectations.  With a strategy statement in place, that “competitive amount” can be clearly defined by your compensation strategy—in dollars and cents. It is then the job of the incentive-plan designer to build a motivating plan that has the characteristics or topography outlined (or required) in your compensation strategy. For example:  "If company or individual performance exceeds expectations and industry standards, higher levels of total annual cash compensation will be awarded." You could interpret the above statement to mean that 75th percentile instead of 50th percentile total annual cash compensation will be paid to bonus-eligible employees when performance expectations are greatly exceeded--through the use of the company's annual bonus plans.
• Ability to quantify pay-for-performance and budget compensation expense—if I were your CFO, I would be very glad to have a company compensation strategy to use as a guide and a tool. Why? It would allow me to simply tell the Board and our lenders how changes in company performance will impact total compensation expense for the company. Further, it provides a budgeting guide that clearly will reveal the costs of adopting (a new) or continuing your (current) compensation strategy—good or bad.

Does your company have a written (or unwritten) compensation strategy? If you do, also think about what you plan to do about employee benefits in the coming 24 months.  Are you receiving the benefits I have described above? They are there--go get them.

If you do not have a compensation strategy and believe it is a good idea, try this. Take the above-stated example and apply it to the current pay practices of your company.

• Would it (or something like it) make sense for you?
• What would be the results (in dollars and cents) and impacts if you applied the benchmarks and benefits discussed above to your company and current pay practices?

If you like what you see, take the step of writing and adopting your own company’s pay strategy. I bet you will learn to like the benefits.

Wilkening & Company has helped many clients write and benefit from compensation or reward strategies, and would be glad to discuss methods and benefits in more depth.

* When the writer refers to the 50th percentile salary practices versus the market, it means that you have selected a salary practice at the middle of the market (as represented by reported data)—or median. The 50th percentile is a point where ½ of participants reported data observations higher and ½ reported data observations lower. It is again the middle of the market. Likewise, the 75th percentile is where ¼ of participants reported data observations higher and ¾ reported data observations lower.