The document proposes several new compensation plan scenarios for sales representatives and models their impact. It finds that lowering the hourly rate and increasing commissions per activation results in a "wealth transfer" where representatives with fewer than 22 activations per month see reduced pay while those with more see increased pay. A one-page matrix compares the key data of 7 combinations of fixed and variable pay to help decide the most appropriate new plan.
2. CURRENT SITUATION
• We pay $7.25/hr + $17 per Activation
• We have 70°/o of our Comp Pay as Fixed,
only 30°/o is Variable
• We have 30°/o of our Reps achieving 0-9
Activations per Month, and they do not
generate enough Gross Margin to "cover"
their fixed labor costs (another 20°/o get
10-19 Activations/Month)
3. NEW IDEA
• Why not drop the hourly rate significantly,
and consider the base wages as a "draw"
against commission?
• Instead of $7.25/Hr + $17/Act, why not
something like $3.00/Hr +$50/Act?
• Could we go as far as NO hourly wage +
$75/Act, a Ia Wireless Solutions?
4. ASSIGNMENT
• Let's model the current environment, add
some "what if's" under different possible
scenarios, and "try them on for size"
• How to do that?
• Pickering spends 20 hours over the
weekend building and validating the
models, and prepare a summary for
Monday's discussion
5. ASSUMPTIONS
• September 2003 Activations (77K)
• These activations are paid in November
• 3,600 Sales Reps (exclude FMs)
• SIS only (for now)
• Base Pay and Phone Comm only (for now)
• Excludes Accessories, Spiffs, Bonus,
Dish, Training, OT, etc.
6. ASSUMPTIONS (Cont'd)
• By "backtesting" against prior period data,
we can validate the components of cost
plus the total cost of various options
• However, this is a "static" model test (total
pay &total activations were kept constant)
• When we actually change the camp plan,
SR behavior will change (some will move
"up" and some will move "out)
7. STRATIFICATIONS
• We have a diversified population of reps
• Stratify by activations/month (1-155)
• Mean (Average) is 21 activations/month
• Stratify by Hours Worked/Month (grouped
into major categories: 0, 40, 60, 80, 100,
120, 140, 160+ hours/month)
• Mean (Average) is 116 hours/month
8. PAY VARIANCE GRAPH
• This graph shows the change in total pay
for implementing the New Plan vs. the Old
Plan
• The overall average impact of the $3.00/Hr
+ $40/Act plan is a "wealth transfer" from
those who achieve <22 activations/mo. to
those who achieve 23+ per month
• The "cutover point" is different for each
hourly strata and for each possible $/Hr +
$/Act combination
10. COMPENSATION/HR GRAPH
• The Old Plan (darker diamonds) is a flatter
line, starting at $7.25/Hr and extending up
to around $20.00/Hr for top SR's
• The New Plan (lighter squares) is a
steeper line, starting at $3.00/Hr and
extending up to $35-$40/Hr for top SR's
11. TOTAL COMPENSATION PER HOUR
45.00
IIi
40.00 111!11~
NEW II
!
35.00 II
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-~~
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••IIIII
30.00
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IIi Ill
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~ 20.00 ••~~ ........
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15.00 ..,.~~~· .
10.00 I
I5.00 ---·-···- -------- ~!
0.00 r-BIII-
• 11181111 llllli.IHIII M4l ' I
0 20 40 60 80 100 120 140 160 1801
ACTIVATIONS PER MONTH I
I
12. STACKED AREA GRAPHS
• The next two graphs show fixed pay and
variable pay under the Old Plan vs. the
New Plan
• The huge 'Shift into variable pay (darker
area) is evident.
13. 125,000
CURRENT FIXED &VARIABLE PAY MIX
.__100,000 --- -(f)
0
(J
!z
!0
I~ 75,000
:(f)
iz
I l.U
in..
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0 50,000
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,-I
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It-
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i
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I VARIABLE]
1 10 19 28 37 46 55 64 73 82 91 100 109 118 127 136 145 154
ACTIVATIONS
14. 125,000
t-100,000
en
0
u
:z
0
i= 75 000
<:( '
en
z
UJ
0..
~ 50,000
(.)
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1:- 25,000
0
NEW IDEA $3.00 &$40/ACT FIXED &VARIABLE PAY MIX
I VARIABLE I
1 10 19 28 37 46 55 64 73 82 91 100 109 118 127 136 145 154
ACTIVATIONS
15. COST/ACTIVATION GRAPH
• Under both plans, we have very steep
leverage downward of cost/act from 0-9
activations and we have a relatively flat
cost/act after exceeding 50 activations/mo.
• The crossover point is 22 activations/mo.
• At 9 acts/mo, the New Plan has a $75/act
cost, where the Old Plan was $1 02/act
• At 6 acts/mo, the New Plan has a $92/act
cost, where the Old Plan was $143/act
16. z
0
-
350
300
~ 250
>
t=
~ 200
0::
w
0...
~ 150
0
u
100
50
0
TOTAL COST PER ACTIVATION
----- - ,_ -- I
' I I
- - =.1 ~..·r=t-=:.=t=:_: 1 ~ =:. =1.
·!fi----t-----t--~--t--+----+------+----111-t---,i----11!1 IIBtHI, lljHII!I J--..J--.J
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160
ACTIVATIONS PER MONTH
17. ONE-PAGE MATRIX
• This page contains the key data to analyze
the differences of 7 possible combinations
of fixed and variable pay
• All the detail of each has been tested
• We have to decide which mix of fixed and
variable is most appropriate
• We have to be ready to replace people we
will lose