When a 100% Commission Model No Longer Works
A U.S.-based Fortune 100 retailer
Following the 2009 recession, the client's business model had been negatively impacted. In an effort to diversify revenue streams, the retailer acquired and launched a new business line that would help to re-position their already-trusted brand in the marketplace.
About the Company
- 358,000 associates
- 1,900+ store locations worldwide
- $94B annual sales
Before the retailer could grow two new lines of business, the company had to solve a problem with turnover in both sales teams — 75 percent of sales personnel left the organization within the first year of employment. One complicating factor may have been the large discrepancy between the Incomes of the top performers vs. bottom performers. With the unemployment rate was below 5 percent, a zero-base compensation plan was not attracting the level of talent required to grow the new businesses. The retailer suspected that in order to create a more even sales force, it would have to change the compensation plan.
Aon estimated turnover was costing the organization $361 million annually.
Aon estimated turnover was costing the organization $361 million annually
- There was a large disparity between incomes of the top sales performers and bottom performers.
- The zero-base salary was not competitive in the market.
- The company adopted a change in its sales compensation philosophy while accounting for a change to its cash flow model.
Aon was hired to perform a full assessment of sales compensation plans, which involved interviewing senior executives about the organization's vision, objectives and growth plan. Aon analyzed individual pay and performance data and benchmarked the plans against the market. The work Aon provided for the retailer concluded that their sales compensation plans were not competitive within the market, specifically the zero base salary.
The company's finance leaders viewed the establishment of a base salary as an unwelcome Incremental fixed cost that pushed risk back onto the company. But, the cost of not changing the sales force compensation plan could be viewed as a multi- billion dollar risk to the brand equity. During this period, there were other large organizations in the marketplace that were coming under fire in the media for having overly aggressive sales programs in place, which resulted in fraudulent sales behaviors. In order to address this risk and rationalize the new programs, the retailer re-examined its pay philosophy.
After spending six months building consensus among executive the organization adopted a change in its sales compensation plans and overall philosophy to pay, while accounting for changes to their cash flow models. Aon helped build an integrated sales compensation plan that is currently being implemented within the organization. The new plan has the power to impact additional areas within the organization, such as how the firm approaches performance management. The retailer plans to track regularly how the updated pay structure impacting the turnover rate and revenue growth.