Creating a Comp Plan that Works

Comp plans are critical to a staffing company’s success and sustained growth. Yet developing a good one is a frequent issue for staffing leaders.

A good plan works for both the individual and the company. Although no two plans are the same, they have similar elements. This is particularly important for profit-generating positions who would be measured on gross profit (margin) as well as general, unit and regional managers, and VPs. Here is a sample process, using a sales rep (business developer) as an example.

Step 1. Obtaining the going rates for base salary and bonus (commission) for like positions in your geographic area and industry sector. These elements are tied to tenure for the base salary and a bonus or a commission plan. Bonuses should be tied to gross or net profit one is credited with, with a high, median and low range, and a sliding payout scale that is self-correcting.

That is, the higher the employee’s profit impact, the more they should earn.

Of course, a good comp plan includes more than straight money. Perks, recognition, team chemistry, growth opportunities, clear job descriptions, continual training and education all come into play as well.

Step 2. Measure the profit impact of each person. This can be done based on their contribution ratio (gross or net profit/compensation cost), which should be well above one. Then you would determine their full absorption ratio, which prorates company overhead over all producers to make sure every person receives their fair share of these costs. Although some people may be below one here, they may be critical to the organization. The key is that the entire team is over one. These ratios should be calculated after the person has had sufficient time on the job.

PREMIUM CONTENT: US Internal Employee Compensation Estimator

Step 3. Calculate key performance indicators (KPIs) and to break out productivity. For sales reps, these would be are sales conversations and efficiency, such as job orders/sales conversation, fill ratios, etc.

Standards of performance should be set based on higher end performers. When this process is extended, gross and net profit can be calculated, tracked over time, and areas needing improvement can be addressed.

This process can be converted into a profitability algorithm that is a functions of both productivity and efficiency translated into gross or net profit. This process should be an ongoing to see trends quickly and take corrective action early. When the results show that a person’s contribution ratio remains below one, does not improve and reduces the company profit, termination is the answer.

Step 4. Provide the tools for the job. In the case of sales rep doing business development, a lead list is critical. The best ones would include the amount spent on one’s services by niche, prospects within the market; names of multiple contacts by title and related data. Such lists are available for various industries. Traditional tools such as making use of personal contacts, networking, advertising, the Internet, providing value added services, etc. are essential.

Step 5. Tested the plan under various conditions to make sure it works as intended. This would include flexing it for various economic conditions, competitive factors, the loss or gain of a key client or key team member, available financing, etc.

It is essential that staff compensation and company profits move in the same direction for a win-win plan, otherwise it should be modified. A good comp plan should work for the short and long term and be modified as conditions warrant.

Michael Neidle

Michael Neidle
Michael Neidle is president and CEO of Optimal Management, an advisor to staffing firm owners and managers.

Michael Neidle

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