There are no right answers with compensation, but here is what works for many family businesses.
Sales
The most successful sales compensation programs are typically a combination of small salary plus commission. The commission should be on a sliding upward scale based on customer profitability after delivery costs. Using after-delivery profits is especially enlightening to sales personnel who may not ordinarily consider complexity of delivery in their pricing.
In order to compensate sales people on after-delivery profit, your accounting system must track delivery costs. If actual internal delivery cost data is unavailable, delivery costs can be based upon common carrier freight rates.
With all sales personnel, if only individual profits personally generated are considered in compensation, sales people may become highly selfish. Many family businesses build teamwork and encourage cooperation with office staff through additional bonus programs.
Drivers
The most efficient driver compensation in the industry is to pay per load with extra compensation for down time, truck upkeep and safe driving. Per-load pricing should be based upon estimated delivery time using zones adjusted for any special considerations at the drop site.
We all know that truck upkeep is vital to safety. Therefore, establish a checklist for cleanliness and maintenance that must be met by each driver. Safe driving compensation should include absence of costly spills and mixes in addition to general on-road safety.
Savvy business owners also involve drivers in their marketing effort by providing bonuses for referral of new customers. Since your drivers are out and about daily, they are best positioned to detect new business opportunities.
Although paying drivers per-hour is definitely the easiest method to administrate, please note this practice penalizes efficient drivers and rewards slow-pokes. Changing to per-load will help reverse this situation and reward your top performers with extra pay for their efficiency.
Store Managers
The key to store manager compensation is a well-structured bonus program. Bonuses must be based upon only those items managers can directly control. That includes gross margin and most operating expenses.
The most critical expense under manager control is personnel — salaries and all benefits. Managers should also be held directly accountable for shrinkage, maintenance, advertising, promotions, utilities, and rent — any and all direct expenses which they can and should control.
Although as an owner you want to know the bottom-line of each store after headquarters expense allocation, bonus your managers before allocation. A manager’s compensation should not be impacted by owner salary or any other arbitrary headquarters expenses managers can not control.
Credit Managers
Many companies have designed bonus programs for the folks that make credit decisions and collect delinquent customer payments. Although you may be tempted to take the easy way out and bonus based upon lack of bad debt — don’t! This bonus plan could encourage a credit manager to delay declaring bad debts and extend further credit to unworthy accounts.
Instead, look for ways to bonus for correct behavior — getting up-to-date financial statements from customers, making regular credit inquiries, getting personal guarantees, or increasing the percentage of accounts which are “current.”
Dispatchers
A dispatcher’s job is extremely important to the operating efficiency of the organization. Your dispatcher’s expertise is critical to keeping delivery costs low. Therefore, savvy owners bonus dispatchers monthly based upon controlling delivery costs.
When setting up this type of bonus program, be sure to exclude truck maintenance and repairs. You do not ever want truck maintenance to be delayed or skipped entirely to meet a dispatcher’s bonus.
Customer Service
These folks are the front line to your customer. Successful compensation is a blend of customer satisfaction measures coupled with operational efficiency. As with store managers, any bonus program must be based upon only what is within their direct control and that which can be quantitatively measured.
Finally, consider an overall company profit-sharing program as a way to pull your entire team together. Ideally, every employee should be working to please the customer while improving bottom-line company results.
