30 Jul Trends in HOW Freight Brokerage Customer/Shipper Sales Resources are Paid
We are still working our way through all the data from the 2017 TIA freight broker compensation survey and are noticing some interesting trends. Note this graph:
This graph shows data from the 2015, 2016 and 2017 surveys on the methods used to pay shipper sales. The choices were:
- Flat commission: a single commission rate (e.g., 10% of gross margin) is paid
- Marginal or retroactive commission: commission rates vary based on productivity tiers (retroactive goes back to the first dollar, marginal pays the higher rate only on the dollars in the tier)
- Goal-based incentive: pay is tied to a specific goal attainment level (e.g., 80% of goal pays 25% of the target incentive)
- Declining commission: higher rate for initial time period, then lower rate for subsequent time periods, etc.
- Team pool: commission calculated on a team result and divided among team members (may be evenly divided or according to some pro-ration method)
- Bounty, KPI or MBO or Other: there are a multitude of ways to pay incentives, this is the catch all bucket for all of the other methods
If you just scan from the first set of data (2015) to the last set (2017) and focus on the blue (straight commission) and peach (tiered commission) columns, a change is clearly visible. Fewer organizations are using a straight commission approach with more opting toward using a tiered commission, either retroactive or marginal.
This is a good and welcome change as straight commissions provide ZERO flexibility to deal with fluctuations in the economy, types of accounts, or capacity crunches that create higher freight rates. On a straight commission, the payout is the same percentage, regardless of the CAUSE of the volume increase. Using a tiered approach, the tiers can be adjusted to account for swings that are not the result of the sales reps’ actions (either up or down). Tiers provide management the ability to fine tune the payouts to the actual effort required and balance out pay for performance in a more equitable fashion. Straight commissions, though far easier to communicate and calculate, provide NONE of that flexibility. Note however that to use tiers, you cannot pay only transactionally. Instead you need to aggregate results to a time bound performance period (e.g., monthly gross margin $) and then find the appropriate payout rate that goes with that performance. You can still then pay it out transactionally (each load from that month gets assigned that one rate) if you use a retroactive approach. This allows you to continue paying when paid, if you choose. If you prefer the mathematically better “marginal” rate where commission rates are applied to each bucket and the buckets added together, you will need to shift from paying when paid, to paying on some earlier point in the cycle – delivery or invoice.
There are many considerations that go into changing from a straight commission plan to a tiered plan, and these are just a few. But it’s heartening to see companies finally making this change, though I suspect it’s largely because current economic conditions have forced the issue.