Many providers of supply chain services compensate their sales force using approaches that are more suited to start-ups than to mature, established businesses.
Beth Carroll, CCP, GRP, CSCP, is a principal with The Cygnal Group, a con-sulting firm that helps companies design, communicate, and manage their sales compensation plans.
Designing effective sales compensation is an art. When done well, it enables companies to develop the right mix of individual motivation and teamwork while balancing the needs for both short-term financial gain and long-term strategic positioning. When done poorly, however, companies can end up creating at best a culture of complacency and entitlement, and at worst a culture where sales representatives are working to maximize their own incomes to the detriment of the company.
Many providers of supply chain services, such as transportation brokers, customs brokers, freight forwarders, warehouse operators, third-party logistics companies, and carriers, compensate their sales force using approaches that are more suited to start-ups than to mature, established businesses. By using the best practices outlined in this article, these types of companies can maximize the return on their sales investments and become stronger competitors.
Don't pay more for less work
Providers of supply chain services tend to approach incentive compensation from a simplified, "cost of sales" viewpoint. After determining how much they think they can afford to pay for the sale of a particular product or a service, they establish a straight-line commission plan—for example, 5 percent of margin for truckload brokerage or 0.5 percent of revenue for third-party logistics (3PL) services. They then pay that percentage for as long as the salesperson and the customer remain with the company.
This approach may work for start-up companies, but it quickly falls apart for high-growth or mature organizations that invest large amounts of money in marketing, advertising, customer service and support, technology, training, and other programs that build brand awareness and help to attract and retain customers. That's because the "cost of sales" approach fails to take into account the fact that these programs also have the effect of reducing the effort a sales representative must put forth to secure and retain customers. In fact, the contributions of other employees may have a greater impact on customer retention than those of the sales representative, who perhaps only gets involved with the customer when it's time to renew the contract.
For example, if a company starts by paying its sales staff 10 percent of revenue and continues this approach as the company grows, it could end up paying more than the market rate for similar positions. Furthermore, it will be compensating sales representatives at the same level for what is likely to be less work. As a result, the company risks creating a complacent sales force that does not bring in enough new customers.
Three best practices
To avoid developing a complacent sales force, companies need to shift from the start-up "cost of sales" mentality to a more mature "cost of labor" approach. To accomplish this, it's important to follow three best practices in sales compensation design:
Set the target total compensation (TTC) based on current market value
Match the pay mix to the sales role
Design pay elements to provide the right balance
To start then, companies need to determine the market value for each sales job. This ensures that they will be able to attract and retain top talent without overpaying or creating a disincentive for newclient acquisition. There are many market surveys available that can help you benchmark pay levels, but be sure to look at "actual total compensation" (or "target total compensation" if actual is not available) and not just salary to get the full picture for a sales job. Total compensation is important because the salary may be only 50 percent of the compensation package, and the portion that comes from incentive compensation (commonly called "sales commissions") can vary greatly from one company to another.
Similarly, benchmarking based on commission rates alone is a mistake. In the logistics industry, one company may pay a higher portion in salary and have a lower commission rate for a given product or service, while another company may offer a lower salary but a higher commission rate. Further, well-designed plans should have other variable elements besides commissions; for example, a commission rate based on margin may be offset by a bounty for new business acquisition.
Once you know the industry baseline, set the pay mix based on the nature of the selling role. "Pay mix" refers to the portion of target total compensation that comes from salary (fixed pay) versus incentives (variable pay). Not all selling roles in an organization should have the same pay mix. The more direct and personal control the sales representative has over the outcome of a sales call, the more compensation should come from variable pay (incentives) rather than from fixed pay (salary). When other factors, such as high brand awareness, low price, limited product availability from other sources, aggressive marketing promotions, or high switching costs weigh heavily in the customer's decision to buy (or keep buying), the salesperson is less directly and personally responsible for the revenue from the customer, therefore less compensation should come from variable pay and more should come from fixed pay.
Generally speaking, "hunters," or salespeople who focus on gaining new accounts, should have more variable pay than "farmers," or account managers who focus on maintaining and growing existing accounts. Most customer support roles have the least amount of variable pay of all.
After determining the right mix of variable and fixed pay, companies need to make sure the elements that determine incentive pay provide a balance between financial and strategic objectives, individual and team effort, and shortand long-term focus. An element is the combination of:
performance measure (the metrics used to judge performance; for example, revenue, number of new customers, or percentage of margin);
scope (the level of aggregation at which performance is measured, such as individual, team, region, or company);
performance period (what time horizon determines the start and end for sales credit);
pay frequency (how often incentives will be paid); and
mechanics (what mathematical formulas will be used to calculate pay).
Well-designed incentive plans like the example in Figure 1 include more than one measure of performance. The bestdesigned plans have three elements, but a case can be made for using two or four elements in some circumstances. Going beyond four makes it difficult for the sales representative to give adequate attention to all parts of the plan, and he or she may decide to focus only on those elements that will make the most money and ignore the rest.
By following these three best practices in sales compensation design, companies can maximize the return on their investments in what is likely a very large part of their selling, general, and administrative (SG&A) budget. Additionally, the right design can help companies position themselves for increased growth and improved strategic position relative to their competitors, whether they are competing for customers or for top sales representatives, or both.
Calculating sales compensation: What's the right formula?
The mechanics (mathematical formulas) used to calculate pay can be one of the trickiest parts of sales compensation design. The wrong mechanics can lead to payouts that are either too high or too low for the performance, or they can create a "phantom" base salary that leads to complacency.
One of the keys to sound mechanics is to use a goal or performance expectation against which the payouts are calculated. A commission mechanic (where a percentage of revenue or margin is paid) is fine for many types of hunter (new-client acquisition) roles, but it should pay using a lower rate at below-target performance and a higher rate at above-target performance. It should also avoid creating an "annuity" whereby a representative can make a sale, hand over the account to someone else, and continue to generate income from that sale for years to come. Hunters need to be rewarded for hunting!
Be careful, too, of using a retroactive commission rate (where the higher rate applies back to the first sale), as this plan creates an inverse economic relationship for the additional amount of money that moved the salesperson up to the next compensation level—it costs the company more in incentive pay than it made from that additional sale. This type of mechanic can be highly motivational, but it may also lead to unethical behavior because it offers a disproportionately large additional reward for what could be very little effort.
A goal-based mechanic typically has a performance range in which some pay is earned below goal, but significantly more pay is earned above goal, at a ratio that is typically greater than 2:1. A goal-based approach is often appropriate for account managers or territory managers who have unequal opportunities. Using a goal allows the company to pay the same amount in incentive for the same level of effort, even if that effort does not lead to the same financial result. In supply chain service companies, a goal-based approach is often appropriate when some operations people have inherited large, contracted accounts but others are being asked to solicit and grow smaller accounts. In theory their roles are the same, but the level of effort required to produce the same amount of revenue or profit is very different. If you have different commission rates for different customers (house accounts, contracted accounts, new accounts, and so forth), it may be time to think about shifting to a goal-based approach.
In both the goal-based and the commission approaches, there comes a point where deceleration in the payout curve needs to happen in order to allow for windfalls or unforeseen circumstances where a rep could end up at 400 percent or more of the expected productivity level. Consider the cases where this could happen and plan accordingly. Avoid overall caps if at all possible, opting instead for a decelerated payout curve and perhaps a per-deal cap.
Generative AI (GenAI) is being deployed by 72% of supply chain organizations, but most are experiencing just middling results for productivity and ROI, according to a survey by Gartner, Inc.
That’s because productivity gains from the use of GenAI for individual, desk-based workers are not translating to greater team-level productivity. Additionally, the deployment of GenAI tools is increasing anxiety among many employees, providing a dampening effect on their productivity, Gartner found.
To solve those problems, chief supply chain officers (CSCOs) deploying GenAI need to shift from a sole focus on efficiency to a strategy that incorporates full organizational productivity. This strategy must better incorporate frontline workers, assuage growing employee anxieties from the use of GenAI tools, and focus on use-cases that promote creativity and innovation, rather than only on saving time.
"Early GenAI deployments within supply chain reveal a productivity paradox," Sam Berndt, Senior Director in Gartner’s Supply Chain practice, said in the report. "While its use has enhanced individual productivity for desk-based roles, these gains are not cascading through the rest of the function and are actually making the overall working environment worse for many employees. CSCOs need to retool their deployment strategies to address these negative outcomes.”
As part of the research, Gartner surveyed 265 global respondents in August 2024 to assess the impact of GenAI in supply chain organizations. In addition to the survey, Gartner conducted 75 qualitative interviews with supply chain leaders to gain deeper insights into the deployment and impact of GenAI on productivity, ROI, and employee experience, focusing on both desk-based and frontline workers.
Gartner’s data showed an increase in productivity from GenAI for desk-based workers, with GenAI tools saving 4.11 hours of time weekly for these employees. The time saved also correlated to increased output and higher quality work. However, these gains decreased when assessing team-level productivity. The amount of time saved declined to 1.5 hours per team member weekly, and there was no correlation to either improved output or higher quality of work.
Additional negative organizational impacts of GenAI deployments include:
Frontline workers have failed to make similar productivity gains as their desk-based counterparts, despite recording a similar amount of time savings from the use of GenAI tools.
Employees report higher levels of anxiety as they are exposed to a growing number of GenAI tools at work, with the average supply chain employee now utilizing 3.6 GenAI tools on average.
Higher anxiety among employees correlates to lower levels of overall productivity.
“In their pursuit of efficiency and time savings, CSCOs may be inadvertently creating a productivity ‘doom loop,’ whereby they continuously pilot new GenAI tools, increasing employee anxiety, which leads to lower levels of productivity,” said Berndt. “Rather than introducing even more GenAI tools into the work environment, CSCOs need to reexamine their overall strategy.”
According to Gartner, three ways to better boost organizational productivity through GenAI are: find creativity-based GenAI use cases to unlock benefits beyond mere time savings; train employees how to make use of the time they are saving from the use GenAI tools; and shift the focus from measuring automation to measuring innovation.
Business software vendor Cleo has acquired DataTrans Solutions, a cloud-based procurement automation and EDI solutions provider, saying the move enhances Cleo’s supply chain orchestration with new procurement automation capabilities.
According to Chicago-based Cleo, the acquisition comes as companies increasingly look to digitalize their procurement processes, instead of relying on inefficient and expensive manual approaches.
By buying Texas-based DataTrans, Cleo said it will gain an expanded ability to help businesses streamline procurement, optimize working capital, and strengthen supplier relationships. Specifically, by integrating DTS’s procurement automation capabilities, Cleo will be able to provide businesses with solutions including: a supplier EDI & testing portal; web EDI & PDF digitization; and supplier scorecarding & performance tracking.
“Cleo’s vision is to deliver true supply chain orchestration by bridging the gap between planning and execution,” Cleo President and CEO Mahesh Rajasekharan said in a release. “With DTS’s technology embedded into CIC, we’re empowering procurement teams to reduce costs, improve efficiency, and minimize supply chain risks—all through automation.”
And many of them will have a budget to do it, since 51% of supply chain professionals with existing innovation budgets saw an increase earmarked for 2025, suggesting an even greater emphasis on investing in new technologies to meet rising demand, Kenco said in its “2025 Supply Chain Innovation” survey.
One of the biggest targets for innovation spending will artificial intelligence, as supply chain leaders look to use AI to automate time-consuming tasks. The survey showed that 41% are making AI a key part of their innovation strategy, with a third already leveraging it for data visibility, 29% for quality control, and 26% for labor optimization.
Still, lingering concerns around how to effectively and securely implement AI are leading some companies to sidestep the technology altogether. More than a third – 35% – said they’re largely prevented from using AI because of company policy, leaving an opportunity to streamline operations on the table.
“Avoiding AI entirely is no longer an option. Implementing it strategically can give supply chain-focused companies a serious competitive advantage,” Kristi Montgomery, Vice President, Innovation, Research & Development at Kenco, said in a release. “Now’s the time for organizations to explore and experiment with the tech, especially for automating data-heavy operations such as demand planning, shipping, and receiving to optimize your operations and unlock true efficiency.”
Among the survey’s other top findings:
there was essentially three-way tie for which physical automation tools professionals are looking to adopt in the coming year: robotics (43%), sensors and automatic identification (40%), and 3D printing (40%).
professionals tend to select a proven developer for providing supply chain innovation, but many also pick start-ups. Forty-five percent said they work with a mix of new and established developers, compared to 39% who work with established technologies only.
there’s room to grow in partnering with 3PLs for innovation: only 13% said their 3PL identified a need for innovation, and just 8% partnered with a 3PL to bring a technology to life.
Even as a last-minute deal today appeared to delay the tariff on Mexico, that deal is set to last only one month, and tariffs on the other two countries are still set to go into effect at midnight tonight.
Once new U.S. tariffs go into effect, those other countries are widely expected to respond with retaliatory tariffs of their own on U.S. exports, that would reduce demand for U.S. and manufacturing goods. In the context of that unpredictable business landscape, many U.S. business groups have been pressuring the White House to pull back from the new policy.
Here is a sampling of the reaction to the tariff plan by the U.S. business community:
American Association of Port Authorities (AAPA)
“Tariffs are taxes,” AAPA President and CEO Cary Davis said in a release. “Though the port industry supports President Trump’s efforts to combat the flow of illicit drugs, tariffs will slow down our supply chains, tax American businesses, and increase costs for hard-working citizens. Instead, we call on the Administration and Congress to thoughtfully pursue alternatives to achieving these policy goals and exempt items critical to national security from tariffs, including port equipment.”
Retail Industry Leaders Association (RILA)
“We understand the president is working toward an agreement. The leaders of all four nations should come together and work to reach a deal before Feb. 4 because enacting broad-based tariffs will be disruptive to the U.S. economy,” Michael Hanson, RILA’s Senior Executive Vice President of Public Affairs, said in a release. “The American people are counting on President Trump to grow the U.S. economy and lower inflation, and broad-based tariffs will put that at risk.”
National Association of Manufacturers (NAM)
“Manufacturers understand the need to deal with any sort of crisis that involves illicit drugs crossing our border, and we hope the three countries can come together quickly to confront this challenge,” NAM President and CEO Jay Timmons said in a release. “However, with essential tax reforms left on the cutting room floor by the last Congress and the Biden administration, manufacturers are already facing mounting cost pressures. A 25% tariff on Canada and Mexico threatens to upend the very supply chains that have made U.S. manufacturing more competitive globally. The ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs. These businesses—employing millions of American workers—will face significant disruptions. Ultimately, manufacturers will bear the brunt of these tariffs, undermining our ability to sell our products at a competitive price and putting American jobs at risk.”
American Apparel & Footwear Association (AAFA)
“Widespread tariff actions on Mexico, Canada, and China announced this evening will inject massive costs into our inflation-weary economy while exposing us to a damaging tit-for-tat tariff war that will harm key export markets that U.S. farmers and manufacturers need,” Steve Lamar, AAFA’s president and CEO, said in a release. “We should be forging deeper collaboration with our free trade agreement partners, not taking actions that call into question the very foundation of that partnership."
Healthcare Distribution Alliance (HDA)
“We are concerned that placing tariffs on generic drug products produced outside the U.S. will put additional pressure on an industry that is already experiencing financial distress. Distributors and generic manufacturers and cannot absorb the rising costs of broad tariffs. It is worth noting that distributors operate on low profit margins — 0.3 percent. As a result, the U.S. will likely see new and worsened shortages of important medications and the costs will be passed down to payers and patients, including those in the Medicare and Medicaid programs,” the group said in a statement.
National Retail Federation (NRF)
“We support the Trump administration’s goal of strengthening trade relationships and creating fair and favorable terms for America,” NRF Executive Vice President of Government Relations David French said in a release. “But imposing steep tariffs on three of our closest trading partners is a serious step. We strongly encourage all parties to continue negotiating to find solutions that will strengthen trade relationships and avoid shifting the costs of shared policy failures onto the backs of American families, workers and small businesses.”
In a statement, DCA airport officials said they would open the facility again today for flights after planes were grounded for more than 12 hours. “Reagan National airport will resume flight operations at 11:00am. All airport roads and terminals are open. Some flights have been delayed or cancelled, so passengers are encouraged to check with their airline for specific flight information,” the facility said in a social media post.
An investigation into the cause of the crash is now underway, being led by the National Transportation Safety Board (NTSB) and assisted by the Federal Aviation Administration (FAA). Neither agency had released additional information yet today.
First responders say nearly 70 people may have died in the crash, including all 60 passengers and four crew on the American Airlines flight and three soldiers in the military helicopter after both aircraft appeared to explode upon impact and fall into the Potomac River.
Editor's note:This article was revised on February 3.