Compensation Plan Analysis
For IKON, Office Solutions, Inc. Summer 2002
IKON Office Solutions (NYSE:IKN) is the world’s largest independent distribution channel for copier and printer technologies. According to Fortune Magazine, it is “one of America’s most admired companies”, and Selling Power Magazine claims it is “one of the 50 best companies to sell for".
IKON—along with more than 80% of US firms—employ said “combination pay plans” which blend salary, commission and bonus compensations to achieve a desired balance between retention and motivation of employees in order to attain given firm goals while complying with pay laws.
The objective of this project was to create mathematical and software tools to assist the managerial staff to analyze diverse compensation plans.
The main functionality of the software tool, written in Visual Basic for Excel, allowed one to tune the different components of a compensation plan structure and view a forecast of its effects on particular statistics of interest.
One of the shortcomings of such an approach is that the change in compensation structure will directly affect the sales dynamics: Testing any new pay plan on data obtained under a different pay plan may thus yield misleading figures. The relationship between pay plan and the figures it produces seems to be less sensitive to changes of compensation design than the figures alone are. Thus it may be more valid to use this relationship as the stable element of the comparison.
This requires that one model the relationship between the productivity of a salesperson and her pay plan. Yet no one simple model seems to fit the bulk of salespersons. For example, some seem to work better with the security of a large base salary, where as others seem to be more productive with the incentive of commission and bonuses. Some seem to work harder when they have little time to meet a certain quota, others give up.
As a consequence of this analysis, we see that under a uniform compensation plan, using old data will in fact yield an acceptable forecast of the effects of a reasonably small change in pay plan. On the other hand, customizing compensation plans to individuals or groups of individuals may exploit their different reactions to pay plans.
Note: The figures above are taken from my program. These are for demonstration purposes only and are not actual IKON compensation payouts.