Sales Compensation Plans That Work for Entrepreneurial Companies Featured on Kauffman eVenturing.

KANSAS CITY, Mo. -- The key to winning new customers and incremental sales - the lifeblood of most growth-oriented entrepreneurial companies - is a great sales team and the right sales compensation plan to motivate them. This month, Kauffman eVenturing(TM) (www.eVenturing.org), a Web site for growth-oriented entrepreneurs launched by the Ewing Marion Kauffman Foundation, features new articles and tools to help entrepreneurs design, monitor and leverage sales compensation plans that generate maximum revenue and fairly compensate those who produce it.

"The competition for top sales people is fierce," observed Susan D. Hesse, a Kauffman Foundation entrepreneur-in-residence. "For growth-oriented entrepreneurs, who are often in competition with larger companies for highly valued sales talent, an effective compensation plan can make the difference between success and failure."

When designing their compensation plans, entrepreneurs need to find the right balance between base salary and commissions that best aligns with their particular growth strategy, company culture and objectives. In addition, they should be aware that the shelf life of a compensation plan is typically one to three years, depending on how quickly their company is growing and changing.

Following are highlights of this month's Kauffman eVenturing collection on sales compensation plans, which includes articles by entrepreneurs and compensation experts:

--"Managing Complex Sales Compensation Plans" by Robert A. Bonelli, President and COO, Northeast Securities, Inc., a diversified full-service brokerage firm, who describes the pivotal role technology played in enabling his company's sales compensation plan to keep pace with the firm's rapid growth by automating its commission management system, thus making it possible to keep track of every transaction and its impact on compensation pay-outs.

--"Turning Sales Compensation On its Head" by Townsend Wardlaw, Founder and Managing Partner, Three Value Logic, describes the "Resource and Motivation Model" his company uses to realign risk by: (1) keeping the base salaries relatively low and commissions significantly higher than average (in the range of 10 to 20 percent of gross revenues) to reward measurable performance; (2) distributing resource risk by making sure all accounts are supported by multiple sales people; and (3) using a three-pronged compensation plan whose key elements include base salary, final compensation, and compensation for "interim milestones" in the sales cycle.

--"Great Compensation Plans Need Great Salespeople" by Joe Miller, CEO of BlueChip Solutions, who draws on his vast experience in analyzing sales compensation plans for over 100 companies in dozens of different industries, notes that the best sales plans let the sales team participate in determining the ratio of base salary to commissions and provide the sales force with an adequate draw to tide them over until their commissions kick in.

--"Phantom Stock Gives Sense of Ownership" by Hemal Jhaveri, CEO, SofTec Solutions, Inc., describes the value of using "phantom stock" - a non-traditional form of compensation - to incent senior-level sales personnel. This approach enables an entrepreneur to maintain ownership, but rewards the sales team based on units of the company's future revenue gains.

--"Aligning Compensation With Business Goals" by William Lieberman, CEO of Xtiva Financial Systems, counsels entrepreneurs to set realistic sales targets that align their vision of their company's best route to grow (e.g. through new versus existing customers, new applications, new versus existing markets) with a plan that rewards the sales force for performance above quota and provides them with key performance metrics monthly, quarterly and year-to-date.

--"Building a Sales Compensation Plan That Works" by Jack P. Smith, Principal, Collaborative Strategies, Inc., outlines a disciplined planning and design process, which includes a "motivational quadrant grid" that will help entrepreneurs classify their sales force and organization in terms of the role team work plays and the extent to which fixed versus variable compensation should be emphasized.

--Tools and Templates: Two examples of actual sales compensation tools that illustrate critical elements of a plan, such as plan objectives, sales quotas and compensations formulas.

"Creating effective sales compensation plans is part art and part science," observed Judith Cone, vice president of the Kauffman Foundation's entrepreneurship initiatives. "One size doesn't fit all, but should emerge from a disciplined process and lots of dialogue between management and the sales team."

The Kauffman eVenturing site is dedicated to serving the needs of growth-oriented entrepreneurs. Every month, a new collection of articles on key themes of interest to entrepreneurs - such as finance and accounting, people and human resources, sales and marketing, products and services, operations and the entrepreneur (e.g., strategy, culture, leadership) - is featured on the site. The collections contain a mix of original articles and a carefully reviewed aggregation of some of the "best of the best" existing Web material on the topic at hand.

To read the full collection on "Sales Compensation Plans" please visit Kauffman eVenturing at www.eVenturing.org.

About the Kauffman Foundation: The Ewing Marion Kauffman Foundation of Kansas City is a private, nonpartisan foundation that works with partners to advance entrepreneurship in America and improve the education of children and youth. The Kauffman Foundation was established in the mid-1960s by the late entrepreneur and philanthropist Ewing Marion Kauffman. Information about the Kauffman Foundation is available at www.kauffman.org.