A client asks, "Several years ago I hired a salesperson with excellent references and an impressive history of consistently exceeding quota. Based on this history they negotiated a base salary that was much higher than I typically pay. They assured me that they would earn much more than that in commission and bonuses. Since being hired, they achieve their quota irregularly and have earned little in additional income. To my surprise, they seem quite content. I regret agreeing to this high base salary, but don't know what to do about it at this point."
Managers in this situation often feel embarrassed, duped and frustrated. Sometimes they think they are the only person who has ever made this mistake. They are not. Managers get talked into salary arrangements like this all too frequently.
There are several possibilities for the underperformance of this sales representative. Their track record of quota achievement could have been exaggerated, their references somewhat less than honest. Perhaps a lifestyle change of some kind has made them less money motivated. Though they may have earned more money before, this might be the first time they have had a base salary on which they can live comfortably. Rest assured that whatever the reason, you aren't stuck.
Research Industry Norms
If you don't know already, find out what the average base pay is for a sales representative in your industry and others that are similar. Call colleagues in other areas of the country and find out what they are paying, taking into consideration regional cost of living differences. Then write a new compensation plan that is competitive, within the norm for your industry, and standardizes the base salary that you pay all sales representatives.
Get the Facts
As I so often say in this newsletter, arm yourself with the facts before you sit down and speak with the sales representative in question. What is the actual difference between their sales quota and production? Are they regularly achieving their minimum productivity goals (number of prospecting calls, presentations, proposals)? Is their product knowledge where it should be at this point in their tenure? How long does it take the average sales representative at your organization to start producing? How long has it taken them? Be prepared to discuss these points.
Meet with the Sales Representative
When you meet, tell them that you will be putting a new compensation plan into effect that, among other changes, standardizes the base salary for the entire sales staff. Let them know that you understand this involves a salary reduction for them and that you are willing to gradually decrease their base over a period of three months so they can adjust.
Prepare for Objections
When they protest, tell you that they deserve this higher salary based on past performance, state firmly that they are not performing up to expectations and that if this continues you will be forced to put them on a performance improvement plan. If the discussion continues, start reviewing the particulars of their performance to date.
Impact on Others in the Sales Staff
Because word always gets out, the other sales representatives undoubtedly know that the individual in question earns a higher base salary than they do and isn't really producing stellar sales results. You can be sure that they resent it. They will also find it demotivating because they feel less valued, and they will question your judgment as a manager.
If this person had proven to be a superstar sales representative, you could easily justify the large base salary and use them as an example to inspire the rest of the sales staff. But that isn't the case. Before your staff becomes disgruntled or productivity is impacted, step-up and right this wrong. They will respect you for it.
Obviously, the best way to avoid this problem is to never let it happen in the first place. Do not let a prospective candidate dictate the terms of their base salary ever again - no matter how talented they are or say they are. A truly money-motivated salesperson should be far more interested in commissions and overall earnings than they are in a base salary.
Though my clients come from many different industries, the challenges they face are similar. In "Sales Management Tips," I regularly answer questions that have been posed to me by my clients. I hope the answers will help you to solve some of the sales dilemmas you face in your own sales organizations. If you would like to ask a question, please contact me. The identity and affiliation of those submitting questions will be kept confidential.