Compensation plans can be as different as the salespeople they are going to. For Salem Farm Supply, the diversity and volatility of its market influenced the dealership to go with a fixed salary comp plan. 

Pierce Randall, sales manager for the 2-store Case IH dealer in upstate New York, says that while the base of the plan is a fixed salary, it does vary from salesperson to salesperson based on experience and sales history. 

“It really depends on their experience, depends on their attitude — that’s a big one,” he says. “We work hard every year to review those salary expectations and make sure that we're remaining competitive with where we need to be.”

In addition to their salary, Salem has quarterly sales bonuses. Randall looks at the goal for the dealership for the year, and then sets a revenue goal and a margin goal and breaks it down on a per salesperson basis based on their historical percentage of sales, he explains. 

“So if I've got a salesman that historically is 20% of our business, his goal is going to be 20% of our corporate goal. I review with salespeople every month so they can see how things track, and because we realize things fluctuate from one year to the next or one month to the next, we view these on a quarterly basis. So if you don't have a big month in May, you can make up for it in June. 

Randall says he reviews the bonus structure often. One important aspect of the sales bonuses, he says, is they are determined by how many salespeople hit their bonus. “It reemphasizes the fact that I treat every salesman equally,” he says. “I give them all the same amount of time. I’m there to help them get as many deals as they can. I don’t have the ability to pick favorites because one salesperson is hot and making me money.

“My incentive is for the whole team to grow and achieve their goals, and it also helps with that conversation when we go through the goal-setting process. When a salesman says this number isn't attainable, my response is, ‘Your goal is my goal.’ And I said it, I think it's more than attainable. If it's not, then we're both in it together. We both share skin in the game.” 

Keeping Management Out of Sales

As the sales manager, Randall is a firm believer in staying out of the sales arena, saying it creates friction and confusion when a manager is also selling. 

“When you're the manager coming in trying to do direct sales, every deal you do, the rest of the team's going to look at and be critical in a lot of ways.”

He adds that not selling himself keeps him focused on the success of the team because he’s not distracted by main accounts and trying to spend more time with them. “The salesmen are my frontline guys, that’s their job,” he says. “It also allows me to confidently say they are the experts with their accounts. They are in the field and are the ones that need to see what's going on in the market. So I trust their independence and their thought process.” 

Pros & Cons 

Randall stresses that there are pros and cons to every comp plan and there’s no one-size-fits-all answer for what the right compensation plan is.

“It’s not so much what the comp plan is, it's more important that it just drives the right conversations, and you can drive those conversations a number of ways,” he says. 

For Salem Farm Supply, one of the pros to its plan is it takes a lot of the volatility out of the sales team’s income. Randall also says it is a helpful recruitment tool for experienced salespeople. “They know that in previous roles, if the world is hot, you're making lots of money and then when the air gets out of the sale, those guys can struggle,” he says. 

“I think it's important to add long-term value and focus on long-term growth and success. We try to take that year-to-year volatility out of the picture.”

Another goal of the salary-based plan is to minimize friction between salespeople, Randall explains. “For those that are familiar with commission-based paid plans, there's obviously a little bit of self-interest to get that deal as opposed to having another salesman get involved and sell it.” 

Randall says Salem’s plan keeps the salespeople from trying to play games and “keep their inventory for themselves.” 

“We're in this as a team, we're all going to win together,” he says. 

Randall adds the plan allows the salespeople to spend as much time as they can with their customers — before, during and after the sale. 

“Our reputation is our service sales. There's a lot of follow-up when a unit goes to the field, and I don't want salespeople being distracted trying to get that next deal at the cost of the customer's first day in the field or that experience and follow-up to the sale,” Randall says.

The quarterly bonuses allow Salem Farm Supply to react when the markets change. Randall says that’s important, especially as the industry returns to a more normal business cycle. “The manufacturers have different goals in mind when they come and talk to us, and I’ve yet to meet a manufacturer that really comes in and wants to talk about how much gross profit we’re making,” he says. 

Instead, the OEMs want to talk about market share, growth and units. “That’s why our comp plan is more in alignment with what the manufacturers want.” 

As for cons, Randall says a salary-based plan doesn’t immediately reflect performance — whether good or bad. He also says it can be hard to set initial salary expectations, especially for salespeople coming from other dealers who had a commission-based structure that had some instant gratification. 

The salary-based plan can also make it hard to recruit younger salespeople. “They come in with at times unrealistic expectations of what they think they are worth, and these compensation decisions are sticky. When they go up, it’s hard to go back and go the other way,” cautions Randall. 

Looking at a 3-year trend, Randall tells his team other dealers are going to be high and low. “There will be years when everyone’s getting a new truck and years when they’re not going out to eat this weekend,” he says. “My goal is to ride that 3-year trend line and take that extreme volatility out.” 

More experienced salespeople value the stability, Randall says. Younger staff, on the other hand, want the big paycheck and the new truck. “You just need to be cognizant of the conversations that you'll be having. It can be tricky in really strong markets to be competitive when other dealers are paying high commissions.”

Salem Farm Supply has a profit kicker that is paid on a monthly basis once salespeople hit certain levels of gross profit. “We've got an escalator system to really incentivize guys to push for that next deal.”

Other Considerations

Regardless of the plan your dealership goes with, you need to make sure that sales compensation aligns with company values, Randall says. While there’s a number of ways to do that, he says salary is a good way to do it, and it allows him to have the right conversations. 

He adds that any pay plan will ultimately have some negative and maybe unintended consequences — such as people trying to take advantage of loopholes. He stresses that pay plans need to be simple. He says the main thing a pay plan needs to do is move equipment and bring long-term value to the dealership’s customers. 

“Salespeople also want to be able to know what their pay is going to be with a fair amount of accuracy,” Randall says. “You hear the stories all the time of salespeople who don't always understand the calculations that go into a commission check. So we want to be really upfront about how we do things, and guys know that the more they sell, the better they can do, but there's no crazy formula that's going to affect that.” 

Randall says pay plans should have plenty of upward potential without a set cap. As his sales team grows and develops, he says he continues to reevaluate plans. 

“The goal of business is long-term value, and I have a hard time paying salespeople with what they sold today or yesterday or last month if the goal is to build long-term relationships. There's a lot of variables in this business, a lot more asks from the manufacturer than just pushing that gross profit line.”