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Independent Management Report October 27, 1997 |
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About This SurveyThe IMR received 108 responses to its Distributor Sales Rep Compensation Survey, which was included in the July issue of the IMR. Respondents came from distributors of varying sizes-nine D1 companies, 17 D2s, 34 D3s, 25 D4s, 11 D5s, 11 D6s and one D7. No companies in the D8-D10 range responded to the survey.
Distributor Categories
D1-Less than $400,000/year
How Much Should You Pay That Rep? There aren't any easy, one-size-fits-all answers to these questions. Often, it depends on the individual company and the kind of people it employs. For example, George Tranter, president and owner of Michigan Business Forms, a distributorship in East Lansing, Mich., has had the same compensation plan since he hired his first sales rep 10 years ago. "We just picked a plan, and it seemed to work," says Tranter, who pays his reps straight commission. "But we have a different situation here. All our sales reps are former Moore guys that brought their territories with them. I don't go out and actively hire sales reps." Randy Eubanks, vice president of sales for Suncoast Systems Supply, a distributorship in Hollywood, Fla., says that while he has a base commission plan in place, he tries to accommodate individual sales reps' preferences. For example, some want high commission rates without perks, while others sacrifice commission in favor of more vacation time or auto reimbursement. "You have to be flexible and creative and take care of them," Eubanks says. Never propose a plan you can't meet, he warns, or offer "trial commission rates" that get lowered if a rep's initial performance is below expectations. "The quickest way to run off a salesperson is to change his compensation plan," Eubanks says. "A salesperson who feels mistreated is not going to be productive." Although distributors who responded to the IMR's 1997 Distributor Sales Rep Compensation Survey differ widely in the amount they pay their reps, there are some common threads running through the industry. For example, 72 percent of respondents say they pay their reps straight commission. A mere 10 percent pay reps straight salary. Keith Aschliman, president and owner of JK Business Graphics Inc. in Perrysburg, Ohio, echoes many in the industry when he says he often gives reps a base salary initially, then converts them to 100 percent commission by the end of their first year. Larry Dunn also gives reps a base salary for their first year of employment. Dunn, president of Forms Design Plus/Coleman Printing Company in Peoria, Ill., says he considers two main factors when deciding that base salary-the territory the rep will cover and the rep's experience. "We give a base salary comparable to what we think the territory will bring in," he says. Reps with experience get a higher base salary to start as well. However, Dunn advises starting a rep's base salary on the low side and then quickly raising it or giving bonuses once reps prove themselves. "If someone really wants the job, they're not worried about what they'll be making the first six months," he says. "We generally want somebody who's going to look at this as the last job of their career." The charts and graphs on the following pages should give you a general guide to how distributorships pay their sales forces. However, keep in mind that this is only a sampling of the industry. Also, this year's survey covers only sales and sales service reps, not company principals and other employees. For details about who responded to the survey, see page 1. In addition, this issue includes tips on setting up a compensation plan and weighing the pros and cons of non-compete contracts.
Average Number of Sales Reps By Company Size*
Commission Vs. Salary
Annual Compensation-Sales Reps
Small Distributorships (D1 & D2)
Large Distributorships (D6 & D7)
* Represents only one company response
Sales Service
Getting Employee Buy-In for Compensation Plans Two years ago, Systems Business Forms in Savannah, Ga., sold about $10,000 in commercial printing. This year, the distributorship sold nearly $1.5 million in this niche. Changes in product lines and services have caused Chip Grayson, president of Systems Business Forms, to question his firm's compensation plan. "We're into so many new markets-commercial printing, office furniture and supplies," he says. "It's such a new ball game. We need to retool our compensation plan." Grayson already has implemented new ways to reward the distributorship's 13 employees. For instance, he gives bonuses to employees who work on large, time-consuming projects. Recently, an office assistant received a bonus for helping with a $500,000 project that required her to work late and skip lunches. Grayson says there's no set criteria for bonuses; rather, they're given at his discretion to employees who "pay more attention on a particular project." When Systems Business Forms lands a large account, Grayson says he holds strategy sessions with employees to decide how the company will handle the logistics-design, printing, fulfillment and so on. Employees estimate how much time each aspect of the project will take. Then, Grayson determines if a bonus is appropriate. Involving employees in planning projects-and even setting up compensation plans-is key, says Rob Haynes, general manager of organizational excellence practice for Tompkins Associates, a consulting firm in Raleigh, N.C. "Generally, compensation is a taboo topic, so you don't hear owners talking to employees about it," he says. "If you try to develop a compensation plan on your own, then strong-arm it on employees, you'll face problems. If you get employees involved in the compensation plan from the start and they buy into it, you've beaten half the battle."
Haynes encourages company owners to elicit input about the structure of compensation plans from employees. He says this does not mean you should ask about specific salaries or dollar figures, which can be an illegal practice. "You don't want to open the floodgate and ask employees, 'What do you want to make?'" he says. Instead, Haynes suggests owners ask employees the following:
"After employees have helped structure the plan," says Haynes, "company leadership needs to apply specific figures to it." Haynes also advocates pay-for-performance compensation that ties commission to more than the final sale. "The problem we see with sales folks is they think, 'How can I get the biggest commission?'" he says. "Many of them promise the customer anything to get the sale." Instead, Haynes recommends that companies base commissions on marketing efforts, lead generation, referral generation, customer satisfaction, overall company performance and on-time delivery of products in addition to sales. "If I'm going to set up a compensation plan, I'm not going to tie it to how many flat sales the reps made," he says. "I'm going to tie it to how many sales the reps made that met customers' needs." Structuring a compensation plan is no easy task, admits Haynes. You can look at what your peers have done, but Haynes says your plan undoubtedly will need to vary. "You need to customize the approach used for your company," he says. "Every company and culture is different. Entrepreneurs often want to take steps A, B and C and plug them in. You can't do that."
The Non-Compete Debate Larry Zavadil, president and CEO of American Business Forms Inc. in Glenwood, Minn., says non-compete agreements with key employees make sense in some industries, but not the document management industry. Zavadil says non-competes are needed in an industry such as the heart pacemaker business, where expenses are high and there are a limited number of customers and suppliers. "With a tremendous amount of R&D [costs] and liability...there should be some protection [for the employer]," he says. But, he says, "A mature market changes the rules." In the document management industry, numerous companies manufacture products for salespeople to sell, and every business is a potential prospect, he says. Although Zavadil believes a sales rep who stays with a company a short time owes his employer for training costs, he thinks the payment should be monetary-not in the form of a non-compete. Zavadil's employment contracts with reps do not contain non-compete clauses, and American helps newly hired reps fight former employers over non-competes. Certainly, several distributors disagree. One Northeastern distributor says, "We are very, very susceptible to harm and damage of a salesperson thinking he owns his accounts. [Our] distributorship serves large customers, and the loss of a 7-figure account would be difficult." In addition, his firm provides training and a variety of account support services that help salespeople succeed. Therefore, all salespeople are required to sign non-competes when they join the firm. One key to deciding whether a non-compete is worth your effort is whether it will be enforceable. There's no black-and-white answer to this question, either. "Non-competes are enforceable if they are written correctly," says Dick Gorelick, president of Gorelick and Associates, a West Chester, Pa., graphic arts consulting firm. However, the enforceability of non-competes varies by state. For example, it is extremely difficult to enforce a non-compete in California, according to sources, while Ohio courts often side with the employer. Right to work states in general make it more difficult for employers to uphold non-compete clauses. Len Mauceli, president and CEO of Print Technologies & Services Inc. in Addison, Ill., has been a firm believer in non-compete agreements and has won non-compete lawsuits. But, he says, "[Enforceability] depends on the state and public policy. In more and more states, public policy is changing to not enforcing [non-competes]....The tide has turned so far to the left now." Nevertheless, Mauceli says non-compete agreements may still have value as a deterrent for someone who is "sitting on the fence" about leaving a company and/or pursuing accounts called on at a former employer. But even firm believers in non-compete contracts may not always have a choice in the matter. Gorelick says that in today's job market, where a shortage of qualified workers gives employees bargaining power, many prospective salespeople simply don't want to sign a non-compete.
More on Compensation
INDUSTRY NEWS In addition, Mark Pope III, Graphic's chairman, chief executive officer and largest stockholder, agreed to vote 100 percent of his shares for the Wallace agreement and not to sell his shares to any party other than Wallace. Pope owns 41 percent of the total outstanding shares, including substantially all of the Class B voting shares. Graphic Industries is a network of 20 companies with operations in 14 states, including Illinois, Louisiana, Massachusetts, North Carolina, Ohio, Pennsylvania and Texas. Most of its companies are in the northeastern and southeastern United States. Assuming Wallace completes the deal, commercial printing, not forms, would become the company's largest business segment. "High-color commercial printing is an important component of Wallace's strategy to become a fully integrated supply manager by furnishing and managing all the supplies used in large organizations' offices," said Bob Cronin, president and CEO of Wallace, when the company first announced its agreement to purchase Graphic Industries. A key to Wallace's commercial printing strategy is its W.I.N. system, a forms and supplies computerized management system that allows customers to identify documents that can be eliminated or converted to an electronic format. In July, Wallace upgraded its W.I.N. system to include management of commercially printed materials such as brochures, point-of-purchase items, catalogs and directories. "For many of our customers, commercial printing is an area where they have a need for simplifying and streamlining, just as they did with forms," said Brad Samson, director of investor relations and public relations for Wallace. Before Mail-Well announced its competing bid, Norman McLeod, senior industry analyst for Peripheral Insight Inc., headquartered in Nashua, N.H., had called the Graphic Industries acquisition a good move for Wallace. "It fits what they want to do with the W.I.N. system," McLeod said. "I think it will help them be more of a true one-stop printed products supply source for their corporate accounts." Although Wallace has purchased other commercial printing companies, none have been near the size of Graphic Industries. In July, Wallace acquired Moran Printing Company, a high-end commercial printer with three facilities in Florida. In October 1996, Wallace acquired Post Printing Inc., an $8 million sheet-fed commercial printer in West Bend, Wis. Like Wallace, Mail-Well also has purchased several smaller commercial printing companies. Last month, it agreed to purchase another Atlanta-based firm, Color Graphics, a $22 million high-impact sheet-fed color printer. During the summer, it acquired The Allied Printers, a $17 million high-end commercial printer based in Seattle. In addition, it purchased Griffin Envelope, a $12 million envelope manufacturer also in Seattle; and Murray Envelope Corp., a $48 million Hattiesburg, Miss., firm that manufactures envelopes primarily for sales through distributors and through its Barkley Division. Mail-Well is based in Englewood, Colo., and specializes in custom envelopes, filing products and high-impact color printing and has more than 50 plants and numerous sales offices throughout North America. Its 1996 sales were $779 million. Wallace reported record sales levels for its fourth quarter and fiscal year ended July 31. It reported annual sales of $906.3 million, up 5.1 percent from last year. Net income rose to more than $81 million, up 2.6 percent from FY '96. Wallace attributed much of its growth to the addition of 71 new W.I.N. and Select Services accounts throughout the year. (Select Services recipients are smaller customers who receive W.I.N. benefits without an on-site administrator.) The company has 314 total W.I.N. and Select Services customers, which accounted for more than 44 percent of sales.
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Who's Who Correction
The ARTINA Group
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