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CEOs responding to the Chief Executive Boards International Fall Economic Survey confirmed that reports of the death of the US Economy are greatly exaggerated. In fact, things are generally working better than reported by the popular press. Link to Video Summary of the CEBI Survey
I'm quoting one of my favorite economic forecasters, Brian Wesbury, who answers the question, "What's Going Right?":
"Everyone knows housing is still weak. And, everyone knows jobs are growing, but not fast enough to seriously lower the unemployment rate, which stands at 9.1%.
"Everyone also knows real GDP has expanded for nine consecutive quarters, at an average annual rate of 2.5%. No one is satisfied with this; but it is a recovery, not a recession.
"So, how can real GDP grow when housing and employment are so weak? Something must be going right…somewhere.
"Well, it turns out that the strongest part of the economy has been business investment. Equipment and software investment (Cap-Ex) has grown five times faster than GDP – 12.9% at an annual rate over the past nine quarters.
"The strongest category has been transportation and related equipment (trains, planes, trucks, etc.), up 43.3% at an annual rate over nine quarters. Computers and peripheral equipment (including servers, printers, routers, etc.) are also up 26.2% at an annual rate in the past 2 ¼ years. All of this data is adjusted for inflation, and what it shows is, contrary to popular belief, businesses are spending and investing. Moreover, businesses investment is a bigger share of the economy than housing.
"Consumer spending is up, too, despite weak confidence data. After adjustment for inflation, consumer spending is up 2.2% at an annual rate over the past nine quarters. In a shocker, real furniture and household durable equipment spending (refrigerators, washing machines, etc.) increased by 5.0% in the past year and now stands just 0.3% below its all-time high from late 2007. Despite weak housing, and worries about credit, household durable spending has rebounded to pre-crisis levels.
"Last we looked, the only help government is giving businesses is a more rapid depreciation schedule – which is a tax incentive for investment. Yet, trillions are being spent trying to stimulate housing and employment. In other words, what government is trying to boost by spending is going wrong, but where it uses tax cuts things are looking up and going right. If government could find the courage to have faith in markets and not itself, more things would be going right.
"That said…it seems clear that the economy is finding enough strength in business investment and consumption to offset the pain caused by housing and employment. We expect the scales to remain tipped toward growth in the quarters ahead and look for 3% real GDP growth in 2012.
"This growth could accelerate if government spending and regulation were reduced in a significant way. Housing already looks to have found a bottom. Imagine what happens when it finally turns up? Buck up, not everything is going wrong. In fact, there are many things going right in the US economy."
You may be interested in the complete article: http://www.ftportfolios.com/Commentary/EconomicResearch/2011/10/31/whats-going-right
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Terry Weaver
CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
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A manager posted a question on a CEO web forum about the idea of capping sales commissions: "One of our sales reps is blowing out his sales numbers - and is set to earn commissions that far exceed any other rep and even place his total comp above any employee, including myself. I want to understand if it is ever wise to put a cap on commissions when we revisit comp plans for next year?"
When is it a good idea to put a cap on the amount of commission someone earns? Resounding answer: NEVER. If you ever get these inclinations, take a cold shower and rethink. Rationales for this conclusion ranged:
- That's a good way to demonstrate to someone that you can't be trusted -- set up a compensation plan, then when the person starts doing what you said you'd reward, renege on the bargain
- f you created a defective incentive compensation plan -- one that pays too much money for too little accomplishment, it's your fault, not his
- If your plan is well designed and you have a guy hitting it out of the park, what's the problem? Pay him what you promised and hope he'll just keep on doing it more. If a star salesman's economic value is higher than yours, his manager, get over it.
The prime objective (and litmus test) of a compensation plan is "The House Wins" -- hopefully by a factor of 4:1 or so. What do I mean by that? This is a good application for analysis at the margin. What's the marginal benefit to the organization (gross margin) of the next $100 of sales (or $100,000)? And what's the salesman's cut of that? Regardless of how the commission is calculated (on total revenue, on gross margin, on units sold, etc) you'd like the house to have a "win" of at least 4:1. That would mean a sales commission of 20% (or less) of gross margin. Of $100 gross margin, salesman gets $20 and house gets $80 -- a 4:1 ratio. 3:1 isn't bad, either -- 25% of GM for the salesman.
What if there's a base salary involved? Is the commission rate the same? Perhaps, but you don't want to be paying commission on the first dollar of sales. See: "The #1 Incentive Compensation Plan Design Mistake". There's another variation on that theme at: "Incentive Compensation Not Working? Try Plan "B".
Are you completely unhappy with your incentive compensation plan? You're not alone. See: "8 Questions to Ask if Your Incentive Comp Plan Isn't Working".
PS: One misguided respondent commented that "Perhaps you could buy off the salesman with equity in lieu of commission". If you ever start thinking about giving away equity, take a cold shower, slit your throat, then call me.
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Terry Weaver
CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
Sales people habitually spend time on leads and prospects that aren't ever going to buy. That's because they're not the "MAN". What's that mean? They don't have all the qualities of a real prospect:
Money
Authority
Need
Steve Hoffmann of Skyline Exhibits and Design is, like many business owners, his company's lead sales person. He really knows his craft and we find ourselves regularly talking about sales training and sales management. Steve shared this simple, memorable and effective algorithm with me. Breaking it down into parts, here's what makes the MAN (it's not clothes anymore):
- Money -- The money is not only budgeted, but it's available (no "if" qualifiers in the way) and the project itself fits into the company's overall strategy. No contingencies -- the money is there.
- Authority -- The person we're dealing with is the one who can sign the order. Not a recommender. Not a committee. Someone with the authority to spend the budget without any additional levels of approval.
- Need -- There's some kind of pain that this proposal addresses. Something is missing and your proposal fills that void.
So, the next time your sales person talks about a prospect that's just about to buy, ask, "Is he da MAN?"
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Other CEBI Blog Articles...
Terry Weaver
CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
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