Question and answer format
We have one sales rep who was brought in to sell into a different market with a base pay level that is much higher than that of the rest of the team. We have changed our emphasis and he is now selling the same products and in the same role as his 9 peers, but at a higher base. How do we correct his base pay?
This one is tricky as you know, and fraught with opportunities to totally undermine the motivation of Mr. Overpaid. Aligning compensation is the fair thing to do (at least internally). However, a transition of some kind might be a nice compromise so here’s an idea:
Reduce the base, but fund a guarantee for six months equal to the amount of the base that has been reduced. Then require that the sales person “earn through” the guarantee before additional variable pay is delivered.
Let’s do an example:
> Current too-high base = $80k
> Appropriate base = $60k
> New target incentive (once base is $60k) = $40k
So you’ll need to take $20k out of the base, which is $5k/quarter. The sales person then is guaranteed $20k for the quarter = new base ($15k) + guaranteed variable ($5k). If the person earns less than $5k on the normal variable pay plan, then no additional pay is delivered (beyond the $20k). If they earn $7k (for example), then an addition $2k would be paid.
Continue this for a very few quarters as a transition, then they would be on the regular plan like that of their peers.
Clearly, if Mr. Overpaid is not satisfied with the lower base, he will have a look around during those six months, and may move on to a job that meets his needs for less risk if he can find one. Meanwhile, he has a chance to see what his earnings would be on the new plan and re-commit to the job with the new compensation arrangement at the end of six months if it works for him. And the company has established a clear endpoint by which the too-high-base will end.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.