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From “Irrational Exuberance” to Unprecedented Upheaval
And What You Can Do To Survive
PRESENTED BY:
Kent Romanoff
Romanoff Consulting
October 21, 2008
Romanoff Consulting
585 Pine Creek Road • Walnut Creek, California 94598 • Tel (925) 945-8998 • Fax (925) 945-0998 • [email protected]
Romanoff Consulting
Romanoff Consulting Highlights
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20+ years consulting experience
Over 140 clients served
Numerous industry sectors
Practice Areas:
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Romanoff Consulting
Incentives and Reward Design
Sales Compensation
Executive Compensation
Strategic Planning
Merger and Acquisition Support
Organizational Transformation
Process Improvement
Strategic Information
Employee Communications
Product Design & Development
Interim Management
Expert Testimony
Executive Representation
More Highlights
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23 Staffing Company clients
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Creator of IncentivePlanBuilder.com -- the only on-line incentive
design tool for managers
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Featured blogger on The Salary Sage -- a blog devoted to best
practices in compensation design
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Published on wide range of human resource and business topics
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Regular speaker at conferences and professional organizations
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Teaches business at university level
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Serves on numerous Boards of Directors
Romanoff Consulting
Staffing Company Clients
Artizen
BASE Consulting
Branta Group
Crimson Consulting
Endymion Systems
ESG
Excalibur Associates
Hicks Consulting Group
IT Academy
Jaeger Group
NetNetNet
Pacific Firm
SurfSoft
Systems Integration Solutions
Systems Partners
Taos Mountain
Technology Forecasters
TechPartners
TechProse
Thinknicity
Thor Group
Trattner Network
VirCon
Romanoff Consulting
From “Irrational Exuberance” to Unprecedented Upheaval
IT staffing firms may be facing their toughest challenge yet:
¾ Shrinking margins
¾ More sophisticated clients
¾ Intense competition
¾ Clients cutting back
¾ IT projects on-hold
¾ High operating costs
¾ Shortage of capital
¾ Closed acquisition window
¾ Limited exit strategies
In such times, all will be weakened, but the strong will survive.
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What Will It Take
To Survive?
¾ Unleashing the full talent and potential of every employee
¾ Eliminating poor performers
¾ Controlling fixed costs
¾ Emphasizing your strengths (no wasted effort)
¾ Focusing all employees on key drivers of business success
¾ Improving teamwork and cooperation
¾ Giving employees a stake in the success of the business
In this presentation, I will discuss one thing you can do to address every
item on this list.
Let’s begin with a common problem . . .
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Account Manager -- Arcs of Effort Versus Pay
Yrs 1 & 2
Yrs 3 & 4
Yrs 5 & 6
Yrs 7 & 8
Effort High
Effort High
Effort
Leveling
Effort
Dropping
Yrs 9 & 10
$240k
$140k
Pay
Decreasing
Sweet
Spot
$70k
Pay
Low
Pay
Increasing
Pay
Increasing
Pay
Increasing
Effort Gone
0
1
Level of Effort
Amount of Pay
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2
3
4
Years
5
6
7
8
9
Why Is This Happening?
¾ Unrealistic expectations of how long it takes to succeed
¾ Unintentional creation of dead-end, burn-out jobs
¾ Poorly designed commission plans
Let’s take a look at these one at a time . . .
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Unrealistic Expectations Of How Long It Takes To Succeed
In spite of all wishes, desires, hopes and dreams, in my experience
it takes a FULL TWO YEARS before Account Managers begin to
experience success.
Most leave long before this because . . .
9 They get frustrated
9 They can’t make any money
9 Management looses confidence in them
9 Management gets impatient
9 The company can’t afford to keep them on
The sad truth is that they often leave JUST BEFORE they are about
to break through.
This is equally true for experienced AMs as it is for those new to the
industry.
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Unintentional Creation Of Dead-End, Burn-Out Jobs
¾ The Account Manager job requires a talented,
highly-driven sales professional
¾ However, in almost all cases, the AM job does
not lead anywhere
¾ It remains largely unchanged year after year
¾ There is no opportunity for growth
¾ Eventually this leads to boredom, even among
the most successful AMs
¾ Many seek new challenges as Sales Managers
¾ Few staffing firms can afford non-producing
Sales Managers
Faced with few options, some stay on for the money; some leave for new
opportunities, others start their own firm and compete with you . . .
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Poorly Designed Commission Plans
Poorly designed commission plans contribute to the problem.
9 They encourage the wrong behavior
9 They set-up unrealistic expectations
9 They demotivate staff
9 They over-emphasize one aspect of the job (gross margin)
Let’s take a look at these commission plans . . .
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Company Owners Think Their Commission Plan Is . . .
9 Fair and equitable
9 Highly motivational
9 Driving the right behavior
9 Linked to the success of the business
9 Cost effective
9 Simpler to administer
9 Easy to update
While in fact, their commission plan is . . .
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While In Fact, Their Commission Plan Is . . .
¾ Rigid and inflexible
¾ Unnecessarily complex and confusing
¾ Expensive to operate
¾ Indifferent to the developmental needs of each participant
¾ Prone to inconsistency and bias
¾ Blind to key differences in sales territories, industry sectors,
lines of business, or specific clients
¾ Overly focused on a single measure of success (gross
margin)
¾ Providing no clear performance expectations
¾ Undermining teamwork
¾ Causing arguments and debates
¾ Underpaying some employees and overpaying others
¾ Burying the accounting department in paperwork
¾ Encouraging a narrow, short-term focus
¾ Not supporting the long-term success of the business
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What Can We Do?
Do away with one-size-fits-all commission plans.
Replace them with individual incentive plans that are:
¾ Customized to the unique developmental needs each Account Manager
¾ Tailored to the specific needs of the business
Let’s deal with a common objection first . . .
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“It’s too much work!”
There is NOTHING a business owner (or manager)
does that is more important than clarifying for every
employee WHAT IS EXPECTED OF THEM and WHAT
THEY WILL GET when they do it.
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Key
Recommendation
Every employee (not just Account Managers) should have their own
unique individualized incentive plan that:
9 Is linked to the overall success of the business
9 Clarifies how they can contribute to this success
9 Is tied to their personal stage of development
9 Describes precisely what they must do to earn a payout
9 Reflects the unique aspects of their job
9 Is linked to every other incentive plan to encourage teamwork
and cooperation
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Key
Recommendation
Account Manager plans should take into consideration
more than just gross margin.
Other potential measures include:
9 Strategic accounts
9 Account penetration
9 Increasing billing rates
9 Improving collections
9 Expanding into new industries
9 Professional development
9 Skills acquisition
9 Training and Mentoring
Let’s take a look at what such a plan might look like. . .
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Sample Plan
Staffing Company Account Manager
Payouts can be annual, quarterly or monthly depending on the measure
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Sample Payout Calculation
Staffing Company Account Manager
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Sample Measures
Staffing Company Controller
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What Are The Benefits Of This Approach?
¾ Clarifies for each employee exactly what is expected of them and what they
will earn when they achieve it
¾ Supports the overall direction of the business
¾ Links every employee to the success of the business; not just their own
success
¾ Directly supports the business planning process
¾ Encourages teamwork and cooperation
¾ Is tailored to each employee’s stage of development
¾ Can be modified annually (or more frequently) as employees (and the
business) grow and change
¾ Allows you to get money into the hands of new hires earlier without wasteful
draws and “bridge” salaries
¾ Makes employees feel valued, appreciated, and integral to the success of
the business
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How Does It Relate To This?
Yrs 1 & 2
Yrs 3 & 4
Yrs 4 & 5
Yrs 6 & 7
Effort High
Effort High
Effort
Leveling
Effort
Dropping
Yrs 8 & 9
$240k
$140k
Pay
Decreasing
Sweet
Spot
$70k
Pay
Low
Pay
Increasing
Pay
Increasing
Pay
Increasing
Effort Gone
0
1
Level of Effort
Amount of Pay
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2
3
4
Years
5
6
7
8
9
Pay & Results Become Strongly Linked
Yrs 1 & 2
Yrs 3 & 4
Yrs 5 & 6
Yrs 7 & 8
Skills building
Close business
Close business
Close business
Networking
Sourcing
Acct Management
New industries
Relationships
Lead generation
Expand Accounts
Mentor others
Sales calls
Networking
Collections
Industry knowledge
Skills building
Relationships
Yrs 9 & 10
$240k
$180k
Business Processes
$140k
Generate leads
$100k
Mentor others
$80k
Lead teams
New Industries
$70k
Close Business
0
1
Results
Pay
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2
3
4
Years
5
6
7
8
9
Final Thoughts
¾ Experience tells me that this is by far the most successful approach to pay
¾ It is useful in all types of staffing companies, especially those involved in an
ESOP
¾ It may appear complex, but in fact it is far simpler than your current approach
¾ It is extremely well received by employees
¾ It enables you to hold the line on base salaries and shift more dollars to
variable pay
¾ With incentives, unlike base salaries, you always get something for the dollars
you spend
¾ Making this shift is the single, most important strategy business-owners and
managers can attempt during this unprecedented economic upheaval
Romanoff Consulting
Tools That Can Help . . .
www.incentiveplanbuilder.com
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Comments & Questions . . .
Romanoff Consulting
Typical Staffing Company Commission Plan
• Single plan for all Account Managers.
• Payout formula based on increasing gross margin.
• Adjustments for:
•
Payroll taxes
•
Low margin business
•
Employee benefits
•
Sourcing
•
Processing costs
•
Closing
•
Travel
•
Account Management
•
Referral fees
•
Leaves of absence
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Pass-through business
•
Past due accounts
•
Fixed-price projects
•
Shared sales
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Full-time placements
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Inherited business
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Contract-to-Perm
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Call-backs and extensions
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Conversions
•
Early consultant departure
•
VMS
•
Strategic accounts
Romanoff Consulting