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Anatomy of a Team-Based Pay conversion
June 25, 2012 | By Neil Ducoff | 8 Comments
I just returned from Oklahoma City where I converted Richard and Jan Hill’s three Eden Salon & Spas from commission to Team-Based Pay. I’ve been doing TBP conversions for over 35 years. I have done them for salons, spas, manufacturing companies and high-end retail stores. And for over 35 years, I have been at the epicenter of the often heated debate between commission and non-commission believers. My usual response to, “I don’t believe in TBP,” is, “It’s not a religion – it’s a compensation system.” Then again, if I’m perceived as some “TBP Guru” on a global crusade converting commission companies to TBP, then perhaps their perception is somewhat true. Commission believers see their method as a prime motivator to perform. TBP believers see their method as a means to create a dynamic culture.
Just last month, J.C. Penney’s new CEO, Ron Johnson, eliminated commission in all stores including clothing, jewelry, cosmetics, appliances, electronics and salons. Until late 2011, Johnson, along with Steve Jobs, headed up the creation and operations of the wildly successful Apple Stores. Apple Stores are non-commission and Johnson wanted to create the same “do what’s best for the customer/relationship building” culture at J.C. Penney. It was a bold move that clearly rocked the boat throughout J.C. Penney, but it also cleared the way to shift the culture to customer-centric rather than sales-centric. It will be interesting to observe the transition.
Pay conversions away from commission top the list as the one change that owners and leaders fear most. However, the fear comes from a lack of understanding about TBP, the conversion process, the systems that drive it, and how to lead a company that no longer has commission as the prime motivator – if it even is the prime motivator.
I lost count years ago on how many pay conversions I’ve done. Starting in 2001, I began training my team of Strategies Coaches to help keep up with demand. Collectively, our knowledge of the inner workings of TBP conversions is unmatched. Heck, I built the system from the ground up and relentlessly refine it. Here are some no-compromise insights to what a TBP conversion is all about:
- They’ll quit: The fear is that top producers will leave. Why should they? If the conversion was executed properly, few if any should leave. We don’t cut their pay. In fact we give them a slight bump in pay that, for the first time, represents a raise for continued superior performance. We remove the ceiling on their income potential by helping them understand one simple concept: Because they are so busy, their earning potential resides in the hours that are available for sale with their teammates. Hint: On TBP you control the payroll percentage on your Profit & Loss Statement.
- They’ll lose their motivation: Employees will lose their motivation to sell and perform. They will if you don’t implement the systems that support and drive TBP. Pay conversions fail when all that really changed was the pay. You can’t run a TBP company like you do on commission. Think about it. When commission is the prime motivator, leaders can and do get lazy. The truth is, not everyone likes the taste of the commission carrot. Just like learning and communication styles, one approach does not fit all. TBP focuses on overall performance in four key areas: performance and critical numbers, skill requirements, culture and teamwork, and individual strengths. Commission rewards sales. Period.
- Taking back your company: On day two of Richard Hill’s TBP conversion, we had completed the general staff meeting that I lead to introduce where the company was going, the shift to TBP and an overview of the process. We also completed about a dozen one-on-ones with employees to present their new pay and how we arrived at that amount. I asked him how he was doing. Richard thought for a moment and responded, “I’m doing great. This is interesting!” I could see the transformation happening in Richard. He was pro-active and engaged in his company at a level he hadn’t experienced in years. It’s empowering, inspiring and a beautiful thing to see in a leader. When was the last time you felt that way?
- The new accountability: TBP is actually a collection of integrated systems. Too many people think it’s simply converting from commission to hourly. I call that pay system “not commission” because it’s not even in the ball park of TBP. Because TBP is a more “fixed” pay method, financial monitoring, projecting and strategic planning are essential. If you don’t like paying attention to your numbers, don’t convert to TBP. Performance reviews are non-negotiable. Daily huddles and scoreboards are non-negotiable. Broadband Pay Scales, our version of career growth maps, must be built and used. Team members must be held accountable to all of the company’s systems and policies. It’s not a dictatorial culture – it’s a disciplined culture you’re building on TBP. Isn’t this the foundation all great companies are built on? It sure is. You can’t grow a dynamic company by running it like a country club.
- The power of trust: The most boring pay conversions are in companies with high employer/employee trust. By boring, I mean there is little drama and the conversion process moves along smoothly and methodically. In TBP conversions, boring is a good thing – a very good thing. Richard Hill’s conversion was boring. He ran a good company and two months of prior coaching prepared Richard and his leadership team for the big day. It was boring. It was wonderful. It was powerful.
The conversion to TBP takes time. In fact, plan on 12 to 18 months to complete the culture shift. Most of the change happens in the initial 90 days. The real work is in making the change stick long term. That’s where we come in. That’s why coaching is so vital to completing what is perhaps the single most significant change you’ll ever lead your company through. I’m not selling here – just stating fact. Getting a Team-Based Pay conversion across the finish line takes more than a meeting and the firing of a starting gun. It takes a level of teamwork you may never have experienced. And it takes an expert coach. No compromise.
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