Compensation Stress Tests - Frequently Asked Questions
 

1. What are the green triangles on the chart?

   Those represent your official compensation plan(s). They show the intended payout at any level of production. (The graphing software we use shows each point as an individual triangle; when the points are close together it displays as a solid line.) If you have more than one compensation plan, your chart might have multiple green lines.

2. What are the red triangles?

   Each red triangle represents one of your sales associates. It shows what you actually paid that person last year.

3. What is the percentage on the left axis?

   This shows the sales associate's split level. This is the net total, after taking into account chargebacks and fees – basically, what you pay them on the 1099.

4. What is the dollar amount across the bottom?

   This is the production per sales associate – the gross revenue brought into the company by one person.

5. Where does the "giveaway estimate" come from?

   It is the sum of the differences between the green and red triangles. If everyone is getting paid on the green line, it would be close to zero. The more triangles that are off the line, and the further off they are, the larger the giveaway estimate is.

6. Should we do the analysis for the company as a whole or for an individual branch?

   If you want to see how rampant exceptions are throughout your company, and you can get the information we need (official compensation plans, actual payouts) for the whole company, then do the company. That's what we usually recommend.

   If you have recently acquired another company and want to look at them separately, or if you are particularly concerned about a specific branch or region, then do a chart for that group.

   You might want to do several chaos charts to see how different branches or regions compare – that can be very interesting.

7. What if we have different official compensation plans in different branches?

   We can show multiple compensation plans on one chart – you'll just see several green lines. But if you want to be able to see whether exceptions are more of a problem in some branches than others, it's better to do separate charts.

8. How do you handle teams?

   Typically we show each team as one triangle, which works well for most companies. However, if you have a lot of teams and you want to focus on them, we could do separate chaos charts. We could show you all the teams of 2 on their own chart, all the teams of 3 on a separate chart, all the teams of 4 or more on yet another chart (depending on how many teams you have of each size).

9. What information is needed to perform a compensation stress test?

   You will need to give us:

   • Your official compensation plans.
   • Report showing the production and amount paid to each member of your sales force last year.

   The official compensation plans can be sent in a Word document or, if they are simple, you can describe them in your email.

   The production per sales associate should be relatively easy to export from your accounting system. Most companies send us a pdf report. You can also send an Excel spreadsheet or csv file if that is easier.

   We need the following information for each sales associate:

   • The amount of gross revenue they generated last year.
   • The total amount you paid them on their 1099 (or W-2).
   • Which compensation plan they were on (if you have more than one).

   You do not need to identify sales associates by name; you can use a number instead.

   We are happy to sign an NDA if you need us to, but rest assured that we perform these analyses regularly, and your information will be kept completely confidential.

10. What happens in the management team discussion?

    Once we have generated your chaos chart we will schedule a web presentation to go over the results with you. You are welcome to invite your entire management team to participate in the presentation – in fact, we encourage you to invite them.

    We'll explain what a chaos chart is, for those on the call who aren't familiar with the concept. Then we'll show you your chaos chart. We'll talk about what it shows, and we'll answer your questions. This is actually the most valuable part of the process.

    The main reason to do get a Compensation Stress Test is to help your management team realize that compensation is out of control – and that you need to make some changes. So the discussion we facilitate is critical. We talk about:

    • What does this chart show?
    • Do they feel this is OK?
    • What happened that caused x?
    • What is the ramification of the differences?
    • How has the company tried to correct it?
    • Are people comfortable continuing like this, and for how long?
    • What might be some first steps to take in addressing these issues?

    If it's appropriate, we'll also share with you a little information about how we can help you get compensation more systematized and under control.

    This can be a very productive discussion for your team – we've seen Compensation Stress Tests have a huge impact with our clients.

More questions?

If you have any questions that were not answered here, just ask us to contact you and we will be happy to answer your questions.