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Compensation can be a fun — yet often debatable — subject. It needs to strike a delicate balance between what’s right and fair for your employees while also being fair to your business. Any compensation program you put in place must be a “feel good” for both parties.
Because opinions on this subject can be strong, I wouldn’t be surprised to find my email inbox blowing up with comments about this column from people at each end of the spectrum. But I’m taking a stab at it because it’s an important issue that needs to be discussed openly so each side can better understand the other’s position.
So how do you properly compensate showroom employees?
Let me first admit: I don’t have all the answers. However, I have discussed compensation at great length with both showroom managers and business owners. I hope this article will help generate more conversations, which is exactly the reason I share my thoughts on tough issues like this. Together, maybe we can come up with the right answer.
Showroom employees — both managers and salespeople — are underpaid. Showroom teams that are motivated, trained well and consistently meeting sales goals are an asset; they should be paid competitively and well.
But lower compensation is unfortunately deserved when showroom teams don’t have a plan, create an experience for the customer or do the fundamental things needed to capture sales when customers walk in the door. People don’t come into your showroom by accident. When was the last time you went into an AutoZone to look at batteries for fun? Showroom staffs need to remind themselves of this, be prepared and have a well-developed sales strategy in place.
So why is this such a difficult issue to resolve? It turns out this topic has been discussed at length for decades. I was able to Google some plumbing newsletters from the 1920s and found newsletters with articles on how to pay your employees, the importance of good-looking showrooms and the hygienic qualities of the bidet — topics which are still being tossed about today in conversation.
But in an ever-competitive personnel landscape, it’s a topic that needs to be revisited.
When developing a well-planned compensation policy, you need to ensure it aligns with your goals as a company and the culture to which you hold. Performance-based operations with competitive environments differ greatly from established, group-goal-based companies. As an owner, you must decide which type of program makes your employees feel safe, yet competitive, and encourages a consultative environment.
Employee retention also is an important component. I don’t think it’s productive to have employees worried that if they have two bad months, they are out of a job. You certainly don’t want your employees trolling Indeed.com as soon as they have an “off month.”
By the way, as an owner or executive, you should regularly look on sites such as Indeed to see if any of your employees are floating their resumes. If you find out one of your valued employees is apparently unhappy and is looking for another opportunity, it allows you to have an honest conversation with that person to learn why.
With other employees, this may be a chance for you to let them know you saw their resume, wish them luck and let them know you’ll be interviewing soon for their replacement. That should get their heart rate up — and their wheels faster in motion.
I spoke recently with a showroom manager who described the straight commission program he had implemented. It allows a draw so employees know they can expect a certain monthly income. He claimed it works well and creates a healthy environment where poor performers leave on their own. While this initially surprised me, it may be a productive approach. The culture he created was exceptionally competitive and driving the sales numbers was a frequent cadence for him. He runs a great operation.
Many other showrooms offer employees an hourly rate with a progressive tier program on a lesser commission based on profit margin. The more margin, the more commission. They believe this encourages their staff to capture every sale possible by providing exceptions when a competitive job rolls through so the salesperson isn’t penalized for the low margin sale. This plan separates “average” from “abnormal” sales. It creates a fair yet competitive scenario without losing a sale on price match or a possible small commercial job that is showroom-driven.
Paying for consultative skill is another key aspect. What I mean is that the employee is helpful and service-oriented. Enthusiasm and the desire to help other people trumps education, polish and experience. I would rather work with a wildly enthusiastic person who listens to me than an experienced miserable crab who could care less about my needs on a remodel.
This presents the question of compensation based on the level of training and overall skill. Should you create a group commission program past base so all employees benefit from the overall growth of the showroom? A true team approach such as this is favorable when you have multiple employees and a coordinator/assistant who doesn’t sell but is critical to the success of the team.
Of course, the spiff conversation enters here because who should own the spiff — the person who sold it, the one who ordered it or even the one who delivered it? That is a separate discussion for another article. For now, I would say my preference would be to factor in spiffs when having the compensation discussion with staff by letting them know that while many employees may get a certain dollar amount in spiffs, it isn’t guaranteed.
Top vs. Low Performers
Competition is its own compensation plan strategy. I have seen showrooms post a monthly scoreboard tracking each consultant’s sales and profit margin, and ranking them based on their monthly performance. The top performer gets recognition; it is obvious to everyone who the low performers are.
The low performers on this list, unfortunately, typically stay at the bottom and often end up making excuses such as they don’t have the same opportunity to sell as other consultants. You need to decide what you will tolerate when it comes to low sales performance. It’s important you get the appropriate return on investment for all your employees.
As part of this, you also need to discover whether the low performance is because of a lack of training, a lack of sales skills or something else — and then fix it or move them out. As much as there is a need for a great pay program, there is an equal need for you to have formal, written job descriptions outlining what each employee is responsible for, an employee handbook clearly defining the rules of the game, and bi-annual employee reviews that are honest and formal.
When you leave no surprises, you will groom top performers. Today more than ever, employees want feedback.
When it comes to setting goals, if you consider 40-percent gross profit as a goal, then put a base plus commission program together that makes 40 percent and above lucrative. I find it a little high for many showrooms but the key is that each owner should pick the percentage he thinks works.
If someone sells $50,000 per month at 28-percent gross profit margin, he may earn roughly $39,000 per year. But if someone else in the same showroom sells $80,000 per month at 38-percent gross profit, that salesperson could earn about $50,000 per year. Ultimately, performance matters and your company’s health comes first.
One thing I must make clear — it is completely attainable for a showroom employee who is a rainmaker and writes more than $150,000 per month at a high gross profit margin to get into the six-figure pay range. During a recent conversation, someone mentioned capping pay to me. I strongly disagree with doing that. Owners should allow employees to make not just a good living but a great living because their success is your success, too.
It’s also important when you consider that one of many showrooms’ biggest problems down the line will be getting young people to enter and stay in this profession. If you take away that type of earnings incentive, they will likely look in another direction. Those in the Millennial generation aren’t lazy; rather they are smart — and they cut faster to the truth than some in previous generations.
Prospective younger employees want good pay and a company that is socially responsible, fair and fun to work at, while also presenting them with challenges and opportunities to grow. There is no reason today’s showrooms can’t provide that. Ultimately, owners must ensure they’re communicating often and openly, and are creating an environment that celebrates success among their teams.