Compensation in The Heat Treatment Industry-Commissions
On a monthly basis Mr. Josh Hale of International Search Partners, one of the top recruiting firms in the heat treatment industry offers thoughts about compensation and employment issues in the industry. In this month’s article Josh tells us about commission structures for sales efforts at a typical furnace builder.
The Monty Heat Treat News has worked closely with International Search Partners, a US search firm which is known for being the only recruiting agency in the world working exclusively in the heat treatment industry, for many years now. In 2023, The Monty is pleased to announce that this relationship will continue with ISP offering a regular exclusive feature where they will answer questions about salaries, interviewing, negotiations, and a host of other topics related to recruiting and job searching for companies and/or individual professionals in the heat treat industry.
Without a doubt, the most common question from employees and employers alike is about one thing: MONEY. Every couple of years or so ISP contributes the “Heat Treat Salary Guide (https://themonty.com/project/commercial-heat-treating-salary-guide/)” to The Monty with an analysis of salary trends for the industry, but compensation isn’t just about base wages – it also includes benefits, PTO, career progression, work flexibility, commissions, and bonuses.
Last month, Managing Recruiter, Josh Hale, answered a question about bonus plans. This month, he tackles an inquiry about commission structures from the VP of Business Development of a mid-size, industrial furnace OEM:
What’s the best commission plan for a sales team?
Josh: There are a million different ways to structure incentives for a sales team. It varies quite a bit between how most commercial heat treaters set things up vs. how furnace OEMs structure commissions. Since this question comes from a furnace builder, I’ll answer with a focus on the capital equipment side of things.
It is important to have a commission plan that motivates sales and aligns with the company’s goals and fits with its culture. Much of that will be unique to the respective organization but here are some key variables to consider that can help guide a successful commission policy for any furnace OEM:
Base plus commission. The most common type of commission plan is to include a base salary plus commission based on sales. This type of plan guarantees the sales employee a base salary, while also incentivizing performance. (Note: industry standard trends towards OEM sales teams to typically work under a higher salary and lower commission percentage as the sales cycles can be long and unpredictable…).
Tiered structures. A tiered plan is a good way to drive more deals and higher revenue from the sales team. With a tiered system in place the commission rate increases as certain targets are hit, and, when implemented correctly, top performers are rewarded along with the company by aligning incentives.
Quotas. Using sales goals or quotas to rate and measure expectations is useful to both the employee and the employer. Typically, quotas are also used as an extra “carrot” so that if someone meets or exceeds quota, they will earn a higher commission percentage or bonus.
Other general factors to keep in mind are pricing structure, length of sales cycle, territory specifics, and company culture. Specifically, with respect to the furnace OEMs, sales cycle is a key factor to consider. Large capital expenses like certain types of furnaces can have a lengthy sales cycle of upwards to a year or more and in this sort of instance, it’s difficult for a sales associate to remain motivated when their “carrot” is that far into the future. A common workaround is to convert the commission plan into more of a bonus plan where the bonuses are earned for certain metrics or activities leading up to the close of the sale, instead of a percentage of the closed contract.
Another component that might steer a furnace company away from commission to some sort of bonus or bonus plus commission plan is their internal pricing structure or delivery method. This is all about aligning the goals of the employee with those of the company – for example, the company might want to land a high-volume contract with XYZ Inc. and to do so they’re willing to give concessions on price. However, if the sales associate is paid based on dollar value, they might be naturally inclined to go after a lower volume prospect that might yield a higher commission. Again, a bonus for closing a deal with XYZ Inc. may be in order as a supplement or substitute for a straight commission program.
Finally, no matter how one chooses to arrange their commission plan, it’s always important to remember four cardinal rules critical for any commission plan to work:
Make sure the plan is fair and equitable.
Be transparent about the plan with your sales team.
Review the plan regularly and don’t be afraid to adjust as needed.
Use the plan to track the sales team’s performance and identify areas for improvements.
By following these tips, you can create a commission plan that helps your furnace OEM achieve its sales goals while sharing in the rewards with your employees (which helps address a topic of another time – employee retention!).
Josh Hale collaborates with companies to identify, engage, and hire top performers as a professional “headhunter” where he’s focused exclusively on the thermal processing industry as part of International Search Partners since acquiring the firm in 2015. He works closely with Jessica Maier to support the practice, and, together, they’ve helped dozens of companies make hundreds of hires in a variety of roles within the industry, including engineering, sales, quality, metallurgy, and management. For more information email firstname.lastname@example.org or call 619-465-9621.
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