Many distributors operate and manage their businesses in a rough and disorderly manner, especially in terms of compensation, which lacks forward-looking planning and systems, significantly hindering their rapid development. In fact, to better lead peers and gain more development space, distributors must design a reasonable compensation system based on their company size and development stage, making it a perpetual motion machine for high-speed enterprise growth.

Current problems facing distributor compensation systems:

  1. No standardized system. Since many distributor companies employ family members, they see no need to establish a compensation system, and simply pay roughly, let alone have a written compensation policy or document.
  2. Compensation design lags behind development. That is, the compensation system cannot keep up with market development requirements. For example, mature products and markets still use a commission system, lacking guidance and assessment of the sales process.
  3. Compensation is mainly paid in cash, with a single form. This manifests as paying wages or bonuses in cash, while pure wage incentives are far from sufficient for cultivating and enhancing employee loyalty and cohesion.
  4. Compensation design lacks reference. It is basically done behind closed doors, lacking internal or external research and understanding, lacking analysis of employee needs, and without referencing or surveying industry or competitor compensation systems, being in a state of "a blind man riding a blind horse."

How can distributors effectively design a compensation system? In my opinion, a compensation system should include two aspects: compensation composition and payment form. Let's discuss them separately:

Compensation composition: Common compensation compositions include the following:

  1. Fixed salary system. This is adopted by many distributors. Since many distributor companies are small and lack professional compensation designers, they adopt this convenient method. However, its biggest drawback is that, like the "big pot" system, it is difficult to motivate everyone, many people just coast along, and everyone lacks a sense of responsibility.
  2. Commission system. That is, a certain percentage or amount of commission is given based on sales amount or volume. Some distributors adopt a no-base-salary, high-commission approach, while others use base salary plus commission. The advantage of this system is that it rewards based on performance, better stimulating everyone's enthusiasm. But its drawback is that it allows some old employees to rest on their laurels, and it may prompt a few speculators to force inventory, cross-region selling, or dumping goods to get more commission, bringing hidden dangers to the market.
  3. Bonus system. That is, salary plus bonus. Normally, only the salary part is paid, and at year-end, based on company performance, additional bonuses are given through red envelopes or dividends to encourage everyone for the coming year. Its advantage is providing a vision or expectation, but the drawback is that the bonus standard is uncertain; if bonuses are too small, it affects morale, and if too large, many bosses are unhappy.
  4. Performance system. Its composition: basic salary + performance salary + immediate incentives. This is a more complete compensation form that many standardized distributor companies eventually adopt. The biggest feature of this system is linking employee work to company performance, focusing on efficiency and results, while also being process-oriented, so it is favored by many large-scale distributors.

Payment forms: In addition to regular wages, subsidies, travel expenses, and welfare items, it also includes social insurance, housing, shares, stock options, or dividends.

So, what kind of compensation system should distributors adopt? In my opinion, this needs to be combined with the distributor's own development stage. Different periods require different compensation systems to adapt and match.

Start-up period. That is, when one has just become a distributor and everything starts from scratch. This stage may last one to two years, or three to five years, depending on the distributor's sales scope, region, or the cycle of the agency product entering the market. The biggest challenge at this stage is quickly building a network and achieving maximum product distribution. How can distributors mobilize everyone's intrinsic motivation to better accomplish this task? The most effective way is to adopt a "low base salary + high commission" approach. A low base salary complies with national minimum wage policies and prevents those who think getting a base salary is good enough from being unambitious, while high commissions stimulate everyone to work tirelessly and find ways to sell goods. A boss who transitioned from a manufacturer's salesperson to a daily chemical distributor, when initially expanding the market, after calculation and estimation, adopted a high-commission approach. The compensation scope included not only marketing personnel but also drivers, thereby maximizing everyone's intrinsic motivation, changing "have to do" to "want to do." They voluntarily went out early and returned late, achieving good incentive effects.

Growth period. Distributors who survive three to five years after establishment enter the growth period. In this stage, I believe they should adopt a form of basic salary + commission + assessment. Compared to the start-up period, the basic salary can be appropriately increased to stabilize the workforce and enhance employees' sense of belonging and cohesion. Commissions, except for new products or high-profit products, should be kept at an appropriate ratio but lower than the start-up period level. Because at this time, sales volume has already increased, and even if the commission ratio decreases, relying on rapid sales growth can still make some people rich first. Why add an assessment? The purpose is to guide sales behavior through assessment and avoid short-sightedness. We can assess new product promotion, product structure, outlet coverage, price system, etc., ultimately achieving a combination of volume and profit, healthy development, and preventing volume without profit or excessive depletion of market resources.

Mature period. When operating for more than a certain number of years, such as eight or ten years, and market indicators are relatively stable, distributors can be said to have entered the mature period. The operational focus at this stage is to maintain a steady growth state, shifting from simply chasing sales volume and scale to profit and efficiency. At this time, a performance assessment system can be adopted, i.e., basic salary + performance salary + immediate incentives. The basic salary can assess work attitude, attendance, and completion of work forms. Performance salary generally assesses sales target achievement rate (usually accounting for more than 60%), outlet coverage rate, terminal visit frequency, price system, market management, subordinate development, customer satisfaction, etc. Immediate incentives are mainly based on market tasks at different stages, such as new product promotion, new outlet development, personnel training, image store construction, etc., using positive and negative incentives, rewarding good and punishing bad, playing a baton role, generally reflected in the same month. The most typical benefit of the performance salary system is result orientation, process management, and pursuit of long-term goals. It not only comprehensively considers company benefits but also effectively balances employee income, avoiding some being overpaid and others underpaid.

In addition, when designing the compensation system, in the start-up period, besides wages, distributors should also provide employees with social insurance, insurance, and other welfare benefits. This not only makes them law-abiding corporate citizens but also helps retain people and avoid abnormal turnover. In the growth and mature periods, distributors need to consider building an excellent team, especially managing middle and senior levels. At this time, besides wages and benefits, such as increasing seniority pay, they can also consider corporatization of the company, allowing employees to buy shares, allocating shares to excellent employees, and providing year-end dividends or rewarding stock options, etc., to comprehensively mobilize everyone's subjective initiative, give play to everyone's sense of ownership, and thus work together to strengthen and expand the enterprise.

In summary, when distributors encounter development bottlenecks, they should first check their own compensation system. Managing a business is managing people's hearts. Besides objective factors like timing and location, harmony among people is even more critical. Only by clearly understanding different compensation methods and their pros and cons, and flexibly adjusting them according to their own situation, keeping up with industry and market trends, can distributors better play the guiding role of compensation assessment, work together, seize more favorable market high ground, and embark on a healthy and stable development path.

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