Independent Management Report
June 17, 19961996 DISTRIBUTOR COMPENSATION SURVEY RESULTS
Overview
Hiring employees is perhaps one of the toughest jobs for any business owner. And for distributors in the rapidly changing document management industry, it can be even tougher to decide what kind of people to hire and how to pay them. In the past few years, many distributors have responded to changes in the maturing forms industry by diversifying their product offerings to include commercial printing, ad specialties, electronic forms and even home page design for the World Wide Web. Those changes mean changes in hiring people, too.According to the IMR's exclusive survey of DMIA distributors, many companies now have computer programmers or local area network specialists on staff, and several others are contracting these services through consultants. Many distributors also are hiring graphic artists to help offer commercial printing services to customers. Others have hired additional warehouse workers to help with warehousing and fulfillment services, although the percentage of distributors employing warehouse workers dropped slightly from the 1994 survey.
The average pay and compensation structure for most employees hasn't changed much from 1994, but according to the survey results, many principals are paying themselves less than they did two years ago, a possible sign that some company owners may be reinvesting more of the profits back into their companies in this crucial period of change. Meanwhile, rising costs have led many distributors to stop offering traditional fee-for-service health plans to employees. Instead, Preferred Provider Organization (PPO) and Health Maintenance Organization (HMO) plans are more popular.
So how do you decide how much to pay employees? What kind of pay structure should you offer? What about benefits? There are no easy answers. The charts and graphs on the following pages illustrate what survey respondents are doing and can serve as a guide. But in the end, every company is different. "It really depends on the personnel you have more than anything," says Greg Turner, president of TBF Graphics, a distributorship in Saginaw, Mich. "It's very difficult."
About This Survey
The IMR received 122 responses to its distributor compensation survey, mailed in March to all DMIA company principals. The responses were spread fairly equally among the association's eight regions. Respondents included 20 D1 companies, 23 D2s, 37 D3s, 24 D4s, seven D5s and four D6s. No companies in the D7-D10 range responded to the survey. Some respondents did not specify their distributor category.Distributor Categories
The categories used in this survey are the same as the DMIA dues categories:D1—Less than $400,000/year
D2—$400,000-$1 million
D3—$1 million—$2.5 million
D4—$2.5 million-$6 million
D5—$6 million-$12 million
D6—$12 million-$24 million
D7—$24 million-$50 million
D8—$50 million-$100 million
D9—$100 million-$200 million
D10—More than $200 millionMANAGEMENT
Principals
Distributors of all sizes reported paying principals less than they did in 1994. However, most principals still are paid a straight salary, which sometimes includes bonuses. In companies with more than one principal, the secondary principals usually earn much less than the primary principal.Average Compensation for Principals
1996 1994 D1 $55,776 $59,400 D2 70,908 85,408 D3 81,386 106,010 D4 103,391 126,860 D5 133,810 293,036* D6 142,688 N/A * Included D5 and D6 companies
How Principals are Paid
Straight Salary: 61%
Salary and Commission: 25%
Straight Commission: 14%Managers
Most respondents said they don't have many managers on staff. Only 22 percent employ sales managers, 21 percent employ operations managers or controllers, and 10 percent have production managers. However, 52 percent reported employing an office manager or bookkeeper.All respondents reported paying operations managers and controllers a straight salary; just 5 percent said they pay office managers a salary plus commission. Only three companies reported paying sales managers a straight commission. The rest were split evenly between paying a straight salary and a salary plus commission, a change from 1994, when most were paid a salary plus commission.
Average Compensation for Sales Managers
1996 1994 D1 $30,000* N/A D2 80,000* $27,260 D3 66,714 72,675 D4 80,200 95,727 D5 90,000 95,070 D6 126,667 135,000* * Indicates only one company responded
COMPENSATION—SALES REPS
Uncovering Clues to the Compensation Puzzle
Hiring sales reps isn't easy. And neither is figuring out how to pay them. The survey results indicate that a sales rep's compensation varies widely from company to company, even among businesses of similar size. For example, among the D3 distributorships surveyed, annual pay for a sales rep ranged from less than $20,000 to $110,000.Several factors, including experience in sales and in the industry, play a role in deciding what to offer a new rep. "Experience in the industry and not just in sales is important," says Mike O'Brien, president of O'Brien Budd Inc., St. Charles, Ill. "Sometimes you hire someone out of college with no experience and then after a year or two they leave because they decide it isn't what they want to do. I think you're better off with someone who has experience in the industry."
Regardless of your pay structure for sales reps, distributors say they usually start new reps on a salary, unless the reps have a customer list. George Echerd, CFC, president of Multi/Forms Inc., Dallas, and a past president of DMIA, pays his reps a straight commission, but new hires start on a salary. Echerd discourages distributors from offering a "draw" on future commissions until the rep gets up to speed. "That's kind of self-defeating because [draws are] sometimes demoralizing to sales reps," he says. "They start to feel like they'll never get out from under this load."
Instead, if you want to offer a commission-only rate, gradually reduce new reps' salaries over a period of one or two years, suggests Echerd. Turner of TBF Graphics says he's always hired reps at entry level salaries—around $20,000 plus a car and expenses. "You can't get much below that," he says. "But if it looks like it's going to work, I move them up almost immediately into the $30,000 range."
The charts below show the average annual compensation for sales reps at the companies surveyed. Keep in mind that these are not starting salaries, and sales volume per rep varied widely.
Sales Reps—Less than 5 Years' Experience
D1 N/A
D2 $23,000
D3 $31,110
D4 $46,739
D5 $62,700
D6 N/ASales Reps—5-10 Years' Experience
D1 $33,000
D2 $53,000
D3 $45,707
D4 $74,339
D5 $86,120
D6 $72,667Sales Reps—More than 10 Years' Experience
D1 $59,000*
D2 $36,000
D3 $76,543
D4 $81,883
D5 $105,698
D6 $91,190
* Represents only two company responsesSalary or Commission?
There was virtually no change in how sales reps are paid from the 1994 survey responses. As it was two years ago, straight commission is still the most popular way to pay sales reps, and straight salary is the least favored. Echerd of Multi/Forms says he pays established reps straight commission because "it's the easiest way to pay someone. It's all objective. Whatever you sell, you get a cut of it."Some distributors prefer to offer reps more security. O'Brien of O'Brien Budd Inc. pays his reps a salary plus commission. "I think it's more secure for a person, and most people want that security," O'Brien says. "In working with people, I think it's to my advantage to make them feel secure and positive...What's worse than somebody who's worried about having a bad month or not being able to pay their bills? That creates a lot of negativity."
Turner of TBF Graphics pays his reps a straight salary. He says the structure you use is often determined by the personalities of the people you have working for you. "We just happen to have the right combination of people where money is not their strongest motivator," says Turner. "They're making good money, but...their motivation is not dictated by commission or bonus."
How Sales Reps are Paid
Straight Commission: 66%
Salary + Commission: 20%
Straight Salary: 14%How Sales Reps' Commissions are Determined
As in 1994, most sales reps who receive a commission receive a percentage of gross profit. Fifteen percent of respondents said their reps receive a percentage of net profit, and 3 percent said they receive a percentage of gross sales. Four percent reported paying a sliding scale commission. With sliding scales, reps earn higher commissions on high margin sales and lower commission rates on low margin sales.Average Commission Percentage
Commission 1996 1994 Gross profit 45% 41% Net profit 46% 44% Sales Reps' Contracts
Sixty-two percent of respondents said they have contracts with sales reps. Almost all (94 percent) of those contracts contain non-compete provisions.SALES/CUSTOMER SERVICE
Compensation for sales service and customer service representatives increased slightly in most categories from 1994. Sixty-three percent of respondents said they employ sales service or customer service reps, and overall, salaries range from $12,000 to $41,000. None are paid a straight commission; 88 percent of respondents pay these employees a straight salary. Twelve percent pay them a salary plus commission.Sales Service—Average Compensation
1996 1994 D1 $22,720 $20,023 D2 $23,917 $21,976 D3 $24,481 $24,785 D4 $24,058 $21,922 D5 $23,153 $25,863* D6 $28,000 N/A * Included D5 and D6 companies
OTHER EMPLOYEES
Technical/Computer Support Staff
Many distributors are hiring or contracting with systems integrators, computer programmers and local area network specialists for internal projects or for selling high-tech services to customers. For example, O'Brien of O'Brien Budd Inc. hired his first computer programmer three years ago, and he's since hired two more. "They're so busy they can't keep up with the work," O'Brien says. Twenty-two percent of respondents said they had a computer specialist on staff; 36 percent contract with a consultant. Most of the full-time experts are paid a straight salary, and the remaining 22 percent are paid salary plus commission. Annual compensation ranges from $15,000 to $65,000; average pay is $35,513.Expertise of Technical/Computer Support Staff*
Local Area Network Specialist 65%
Computer Programmer 52%
Systems Integrator 49%
* Adds up to more than 100% because some have more than one area of expertiseGraphic Artists
As distributors branch out into areas such as commercial printing, more of them are hiring graphic artists. Fifteen percent of respondents reported employing graphic artists on their staffs, and almost all pay them a straight salary. Those annual salaries range from $20,000 to $47,000; the average is $31,100.Telemarketers
Only 6 percent of respondents reported that they hire telemarketers, compared with 8 percent in 1994. Slightly more than half of those respondents said they paid telemarketers a straight salary; the remainder paid a salary plus commission. Annual compensation ranged from $5,000 for a part-time telemarketer to up to $36,000 for a full-time telemarketer working for a D4 distributorship. Average annual pay is $22,600.Order Entry
Nineteen percent of distributors surveyed employ order entry personnel, down slightly from 21 percent in 1994. Every company except one said it pays order entry employees a straight salary; the other pays them salary plus commission. Annual pay ranges from $16,000 to $27,000; the average is $20,277, up only about $700 from 1994.Clerical
Almost 60 percent of distributors surveyed reported employing clerical workers, and all are paid a salary only. Annual compensation ranges from $7,280 for a part-time clerical worker to $30,000 for a full-time worker. Average annual pay is $19,353, virtually the same as in 1994.Typesetters/Electronic Prepress Operators
The percentage of respondents hiring typesetters or electronic prepress operators has almost doubled since 1994. Then, 11 percent of respondents employed them; today, 20 percent do. About half those workers are salaried; the others are paid by the hour. Annual pay ranges from $8,000 for a part-time typesetter to $38,166 for a full-time worker at a D5 distributorship. Average compensation is $23,013, almost identical to what it was in 1994.Warehouse Workers/Truck Drivers
The number of distributors employing warehouse workers dropped slightly to 43 percent from 1994. Although two years ago most workers were paid on straight salary, today about half of respondents pay these employees an hourly wage. However, average compensation is about the same—$19,105. Average annual pay for truck drivers is $18,403, up about $2,000 from 1994. More truck drivers also are being paid hourly—65 percent as opposed to 13 percent in 1994.BONUSES
Distributors continue to use bonuses as an incentive for employees. Eighty-two percent of respondents said they pay bonuses. Most companies that pay bonuses base them on the performance of the company; about half base them on performance of the employee. Thirty-five percent of respondents use both criteria.Who Gets Bonuses?
Principals: 44%
Everyone: 39%
Customer Service: 24%
Office Managers: 21%
Sales Service: 20%
Sales Reps: 17%
Clerical: 15%
Sales Managers: 10%
Sales Service Managers: 10%BENEFITS
Health Insurance
While more than half of distributors offered a traditional health plan in 1994, only 30 percent of respondents said they still offer one. Turner of TBF Graphics says he switched from a traditional plan to an HMO about three years ago because of rising costs. "The costs were just going bonkers," Turner says. "We had to do something to control them." TBF pays 80 percent of the premium; employees pick up the rest. To soften the blow, Turner says he gave each employee a raise to cover the 20 percent of the premium that started coming out of their paychecks.Several companies offer a choice to employees. O'Brien Budd Inc. has offered HMO and PPO options, as well as long-term disability policies, for several years. "I think [employees] love having the choice," says Mike O'Brien, president. "And since it doesn't cost us anything to offer that choice, I think it makes us better providers."
Type of Health Insurance Offered
Plan 1996 1994 Traditional 30% 50% HMO 34% 26% PPO 36% 28% Health Insurance Premiums
64% pay 100% of the premium
Average percentage companies pay: 71%*
75% of plans cover dependents
Average percentage companies pay for dependents: 31%*
28% pay 100% of the premium for dependents
* Includes only companies paying less than 100% of premiumPension Plan
Sixty percent of respondents said they offer a pension plan to employees. Although the number of distributors offering traditional defined contribution pension plans remains the same from 1994, more distributors are offering 401(k) plans. TBF Graphics offers a Simplified Employee Pension Plan. Turner says the program is similar to a 401(k), except that employees don't need to go through the company to access their money. "It's designed for smaller companies," Turner says. Most employees participate in the plan, he says. "But to my surprise, some of the younger people don't participate," he says. "And they would get the most benefit out of it."Types of Pensions Offered
Plan 1996 1994 401(k) plans 53% 49% Profit sharing 38% 47% Defined contribution packages 11% 11% Defined benefit packages 10% 10% Paid Leave
Average time required to earn paid vacation:
1 week: 1 year
2 weeks: 2 years
3 weeks: 6 years
4+ weeks: 11 years73 percent of respondents offer three weeks of vacation for some employees.
33 percent allow four or more weeks of vacation for some employees.Holidays
Average number of paid holidays: 8
Maximum number of paid holidays: 13Other Types of Leave
Percentage of respondents who offer the following:
Paid sick leave: 74%
Paid jury duty: 69%
Paid/unpaid child care leave: 57%
Paid/unpaid leave for care of elderly parent: 20%MISCELLANEOUS
Most Common Executive Benefits
Company car: 67%
Auto insurance: 44%
Car allowance: 20%Most Common Employee Benefits
Hospitalization: 80%
Health/Accident Insurance: 75%
Profit Sharing: 49%
Term Life Insurance: 49%
Disability: 43%
Dental Insurance: 41%
Tuition Reimbursement: 34%ELECTION OF DMIA OFFICERS AND DIRECTORS
In accordance with Article VIII, Sections 1 and 2 of the DMIA Bylaws, the Leadership Development Committee has submitted the following nominations for DMIA Directors. Unless independent nominations are received, the nominees will be declared elected at the 1996 Annual Meeting to be held in Atlanta, Oct. 16-19.Independent nominations must include the endorsement of at least 25 members of their respective Association membership classification. These nominations must be received by the DMIA Executive Vice President at least 75 days prior to the Annual Meeting (on or before Aug. 5). This year the DMIA Annual Meeting will begin Oct. 16.
Board members to be elected to 3-year terms:
Dean Hendricks, CFC (Distributor)
Hendricks Business Forms Inc.
Hickory, N.C.Rob Montgomery (Distributor)
Omega Business Products
Glendale, Calif.Richard B. Jackson (Manufacturer)
Sterling Business Forms Inc.
Medford, Ore.FY 1997 Association Officers Elected by the Board of Directors:
President
John M. Loftis
Innovative Business Products Inc.
Winston-Salem, N.C.Immediate Past President
Nora A. Shellhase
Emerald Solutions In Print Inc.
Edison, N.J.Distributor Vice President
Frank J. Burgess
Yankee Systems Inc.
Reading, Mass.Treasurer
Roger P. Jefferson
Dominion Graphic Services Inc.
Roanoke, Va.Manufacturer Vice President
Roy V. Flesh II
The Flesh Co.
St. Louis, Mo.Manufacturer Second Vice President
Allen J. Simon
Datatel Resources Corp.
Monaca, Pa.Executive Vice President
Peter L. Colaianni, CAE
DMIA
Alexandria, Va.CLARIFICATION
Transkrit Continues to Sell Through Distributors
Following our report in the May 13 IMR about the impending sale of Transkrit Corp. to DEC International, Transkrit officials received several inquiries about possible changes in Transkrit's sales philosophy. DEC is an Atlanta-based holding company, and two of its companies—Double Envelope and Convertagraphics—sell primarily direct. DEC President Rob Miklas said Transkrit "will continue to operate as it always has: selling its products through its distribution network." Transkrit President Jack Resnick said the company "has no intention of deviating from this basic principle."Putting Job Applicants to the Test
Lee Resources Inc. provides psychological tests that measure what motivates individuals and how they interact with other people. Mark Parks, CFC, president of Reliable Forms Co. Inc., a distributorship in Minnetonka, Minn., has used the service's tests six times in the past year. "It tells us a lot about someone that we wouldn't find out for 30, 40 or 90 days," says Parks. "They're very accurate." Parks says he once ignored the results of the tests in hiring an applicant and lived to regret it. The employee quit after two days. Parks also has used the tests to help determine whether to move existing employees into new positions. DMIA members receive discounts on testing services. For more information, call Lee Resources at (800) 277-7888. Have your DMIA membership number ready when you call.