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Indian River's experiences throughout all aspects of Wholesale Distribution allow us to bring a strategic perspective to compensation and incentives. Although attracting and retaining high performing individuals is a big part of the equation, it is imperative that these issues be viewed in the context of the contemporary distribution industry.
Compensation in distribution is currently a very sensitive issue. Many distributors, if they were to look back at their company five years ago would hardly recognize it. New sales channels, supplier consolidation, acquisition mania and the technology epidemic have all significantly altered the environment in which they compete. These contemporary pressures are forcing distributors to review, and in many cases alter, their value propositions and business models. These pressures have also generated another result: distribution companies are a lot bigger than they were five years ago. Subsequently, the agility of these companies has been reduced. The compounding effect of these two scenarios is the driver behind the compensation issue, communicating direction to a growing organization in an ever-changing environment. When our clients engage us, it is usually not about under-paying or over-paying; it is about influencing behaviors and aligning compensation with business objectives.
Typical Engagements
Although all consulting projects performed by IRCG's Compensation Practice are customized and tailored to each client, the majority of our engagements can be dissected into two categories.
Sales Incentives
Over the last quarter century Indian River has redesigned sales incentive programs for hundreds of distributors in nearly every industry vertical imaginable. Our experience and research contribute to our strongly held belief that there is no silver bullet or universally “best” program. Our knowledge of incentive mechanisms, organizational dynamics, wholesale distribution trends, and proven implementation strategies allow us to be a valuable contributor to any incentive design project team. Although our clients have ranged from small single location distributors to publically traded multi-nationals the redesign process is very similar for all our clients:
1. Diagnostics
2. Strategic alignment
3. Program design and modeling
4. Communication and implementation
The first step, diagnostics, is a critical one. The focus on this step is to ensure that clients will receive optimal value from the redesign process. Not just financial value, e.g. return on consulting fees, but the value realized when the disruption an incentive change inevitably causes is factored in. We have found that there are several situations where a company has misdiagnosed sales incentives as a root cause of sub-par company performance. An organization must think twice about redesigning its sales incentives and tackling other root causes if accountability is non-existent within the sales force (ineffective sales management) or if the roles of the sales organization are not effectively aligned with its selling strategy. To ensure that these value eroding elements do not exist, IRCG typically recommends starting an engagement with an organizational assessment. The strategic alignment step consists of collecting all key views on what the failings are of the existing sales incentive programs and what a any new program should strive to achieve. As simple as this may sound, it can frequently be very eye opening to see the differences that exist among key constituencies. Bringing a depth of industry experience, IRCG provides significant value in facilitating these discussions such that an actionable vision can be acted upon. The two key outcomes required from this step include understanding the right balance between risk and reward for participants, and what the most strategically important sales initiatives the company has. Surveys, focus groups and/or roundtable discussions are utilized during this step. Developing cost effective incentive structures congruent with the strategic design principles identified in the previous step is the core of the program design and modeling step. This iterative step is where modified commission rates are calculated, bonus structures are derived and overall compensation risk to both the company and participant are assessed. IRCG clients are active in the process as recommendations are developed and presented for feedback. The completion of this step is realized when our clients are satisfied that the design principles have been achieved and the models presented demonstrate acceptable economics.
The strategic alignment step consists of collecting all key views on what the failings are of the existing sales incentive programs and what a any new program should strive to achieve. As simple as this may sound, it can frequently be very eye opening to see the differences that exist among key constituencies. Bringing a depth of industry experience, IRCG provides significant value in facilitating these discussions such that an actionable vision can be acted upon. The two key outcomes required from this step include understanding the right balance between risk and reward for participants, and what the most strategically important sales initiatives the company has. Surveys, focus groups and/or roundtable discussions are utilized during this step. Developing cost effective incentive structures congruent with the strategic design principles identified in the previous step is the core of the program design and modeling step. This iterative step is where modified commission rates are calculated, bonus structures are derived and overall compensation risk to both the company and participant are assessed. IRCG clients are active in the process as recommendations are developed and presented for feedback. The completion of this step is realized when our clients are satisfied that the design principles have been achieved and the models presented demonstrate acceptable economics.
Sales incentives are possibly the most powerful tool management has in communicating direction. Little value will be realized if sales representatives and program participants do not understand how the new programs work and why the change is being made. The final design step is to ensure the important messages are heard and the new programs are understood. At a minimum, IRCG will provide documentation on the new programs including scenarios and the rationale behind the change. IRCG will also present the programs to the participants, if desired.
Compensation Audit & Policy
As companies grow, inevitably they reach a point where, whether out of frustration or to ease the budgeting process, a formal method for determining salaries and salary increases becomes necessary. When companies are in their early stages, with few employees, not only are compensation costs minor relative to the other costs associated with running the company, but also the time necessary to review each contributor's pay is relatively small. As companies grow, the labor costs appreciate relative to other costs and 'negotiating' raises with employees is no longer a small feat. Indian River's Compensation Audit & Policy process allows our distributor clients to get their arms around labor costs and tie them to an individual’s performance and the annual budgeting process. The process begins by analyzing all the positions in a company. This is necessary because when comparing jobs to the market value for similar jobs, specific activities and responsibilities will provide more accurate information than just using job titles. Step two in the process entails referencing multiple public, subscription, and proprietary salary databases for the purpose of determining market value, and then grouping positions with similar market values into salary grades. Once all this work has been accomplished and a solid foundation has been established, Indian River works with our clients to formulate a salary administration policy. This policy explains for all employees how tenure, performance and a merit pay budget will influence their base compensation over time. IRCG also takes an active role in communicating the changes throughout the organization.
For more information about IRCG’s compensation design services, call us or email
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