Salespeople are in the home building industry because they recognize the potential for greater earnings. So what are you offering for inducements to stimulate them to perform at their peak? A racehorse left on a track will run, but without competition or a jockey prodding it to race to the finish, it will have no reason to excel. You should be using compensation by objective (CBO)—the total compensation package, including base salary, benefits, commission, and bonus. They are paid according to performance. When your people achieve 100 percent of their objectives, they earn (not receive) 100 percent of their compensation.
A smartly structured compensation plan will provide ample amounts of inspiration and compensation, and close the gaping hole of paying too generously for performance that doesn’t deliver stellar results. Follow this six-step process for developing your sales compensation plan:
Step One: Define your sales compensation philosophy. What is the fundamental mission that drives your compensation plan?
Step Two: Select the total target pay level for each neighborhood, based on location and ease or difficulty of sales.
Step Three: Determine the pay mix for each sales role. This mix is the ratio of base salary to incentive pay at target performance.
Step Four: Choose the amount of upside of incentive pay for high performers.
Step Five: Determine whether your plan will be based on commission, bonus, or both, and the frequency of payouts for each measure.
Step Six: Determine the administrative details included in the plan.
Remember that increasing salary, draw, or commissions does not make a salesperson any smarter, more efficient, or improve their attitude. Don’t reward the one or two sales per month that could happen anyway. That’s just average. Reward performance for the final one or two sales that produce a higher profit.
Tie commissions to company goals with a split compensation model between a base salary/draw and a jiggered commission rate. The ultimate purpose of CBO is to reward performance that aligns with the company goal and not overpay for underproduction.
Realtor and general contractor Myers Barnes is author of seven books, including Secrets of New Home Sales Negotiation. He is the founder of Kitty Hawk, N.C.-based Myers Barnes Associates.