True Story – Amazing Situation:
Got a call from a client with a major compensation problem: their NEW sales rep had just sold the largest services contract and was now, immediately, due a $5 million check.
The contract would take years to fulfill and the revenue would come in on a monthly basis. Yet by signing the contract with the customer, the client immediately incurred a $5 million expense.
Think about that for a second:
Congrats! We just signed the largest contract ever!
…now here is your $5 million dollar invoice due upon receipt.
How did this Happen?
They had a poorly designed Incentive Compensation Plan.
How Can You Avoid This and Grow Your Company?
Incentive Compensation Plans should be designed, structured and implemented to encourage employees to engage in activities that will increase the profitable operation of a Company.
In order to determine how to design a Plan, you must understand your Company’s:
- Cash Conversion Cycle; and
- Direct and Indirect Cost of Doing Business in the Profit and Loss Statement.
The Plan should be developed to work within your Company’s operation cycle and still drive the profitable results in compliance with employment law. This can be easy and beneficial if all elements are considered.
So what happened?
First, the company had to ask the employee to accept a payment plan. Think about that: one day she worked for the CEO, the next he worked for her – for five years.
Second, we had to restructure the Incentive Compensation Plan so it worked inside their company’s operations and culture, while compliant with federal and state law.
Third, the company’s culture took a hit because the sales team perceived something had been taken away from them. ‘Why pursue a big contract if they won’t pay you?’ was the sentiment.
What if the Employee had said “no” and demanded payment?
Well, she could have sued for Treble Damages plus attorney’s fees – that’s a $15 million lawsuit, which she would have won.
What should you do?
Design, structure and implement a Plan that has Annual goals, track them on a weekly and monthly basis – meaning: each Monday, confirm that the team is generating enough revenue to cover salaries and that they are on track to achieve some incentive pay – or they will leave. This audit and measure function helps leaders to manage daily and weekly activity to achieve short term goals and, as a result, attain long term goals while avoiding legal issues.
As COO of a 400 employee product and service company, I tracked each sale’s team and their members’ activity to ensure that goals were met, we knew each day how far off or over goal we were each month. This takes discipline and is the hallmark of a successful organization. Oh, it also tracked and confirmed the ROI on our marketing budget.
Too many times I come across companies with declining prospects and sales with no operational mechanism to fix it. Don’t be one of them.
Develop and use Incentive Compensation as positive accountability tool to attain goals and you can control your business destiny.
General Counsel P.C. has the expertise, skill and–the real key–unique experience of running companies as C Level Executives that makes a difference when advising our clients on: (i) structuring operations for efficiency and legal protection (which means more value); (ii) administration (not just overhead but value added elements); and (iii) Sales/Marketing (proper incentive based compensation causing the behavior that drives results!).
Call us for a consultation.
See your future. Plan your future. Control your business destiny.