How Compensation Affects Retention of Sales Professionals

Debating the importance of having strong salespeople versus strong operations management staff is similar to debating what came first, the chicken or the egg. Without a strong sales effort, operations would have no accounts to work on. Without strong operations people, sales people would have nothing to sell. However, when it comes to the way that certain companies compensate their sales people an argument could be made that the emphasis has been put on the performance on accounts rather than the acquisition of clients.

Operations personnel are typically compensated with a base salary plus a performance incentive. The performance aspect of the compensation could be based upon a certain dollar amount collected or even by how the particular company ranks against the competition. However, the one constant is that for life of the client, the performance incentive remains intact. In general, operations gain expertise through experience. As time goes by, operations become more effective and efficient collecting on a certain type of paper. So not only does the performance incentive portion of the operations professional’s compensation remain intact, but it tends to increase as they hone their expertise in collecting a certain type of paper for a certain client. The probability of retaining your operations top performers is increased because they are given the opportunity to make financial gains by virtue of the performance incentive component of their compensation package.

When it comes to compensating sales people there is typically a base salary plus some sort of commission structure. The percentages vary but it’s typically a decreasing percentage over a period of time. There are many reasons why companies choose to compensate sales people in this manner. One reason is that although the commission percentages decrease, the volume of accounts in most cases increases so ultimately the commissions paid to a sales person increase. Another reason companies choose to have commission rates decrease over a period of time is to motivate the sales person to obtain additional clients. Companies do not want sales people to be satisfied financially by one client. Understanding the motivation of companies to compensate sales people in this manner is simple. However, it is also important to understand this policy’s effect on the sales person.

In the agency world, maybe more than in other industries, relationships are important. Typically, the sales person’s relationship with a client is pivotal. Over a period of time this relationship tends to solidify. A critical error some companies make is decreasing the commission rate to negligible amounts, 1% or in some cases 0%. By eliminating the value of the sales person’s relationship with the client, companies jeopardize losing that sales person to another company where the relationship can once again be profitable.

Sales people understand their role in obtaining, maintaining and further penetrating a client. Today, sales people tend to be more focused on a specific vertical (Telco, Utility, Credit Card) rather than being generalists. As time goes on, the vertical becomes more penetrated and the relationships solidify.

Put yourself in the role of a salesperson. You have worked for years developing relationships and have a core group of clients. Your current employer is paying you 1% on those accounts. Alternatively you can walk across the street to another agency and get paid 5% for those same clients. What would you do?

Of course there are many factors in a career decision, but why would an employer set up a system that promotes turnover by valued employees? While such turnover may be economically beneficial for executive recruiters, it may be in your interest to have a level commission structure that does not reduce over time.

John Fiumano is CEO of Executive Alliance, a leading national recruitment firm that specializes in the debt collection and accounts receivable management industry. John grew up immersed in the credit and collections industry. He’s proud to come from a family of well-respected credit and collections professionals.

John has nearly a decade of industry specific recruitment experience. He has recruited for major banks, telecommunications companies, utilities and service providers to these industries.