Developing a sales compensation strategy that strikes a fair balance between incentives for salespeople and profits for the company is tough enough. But when the price of steel doubles unexpectedly, as it did last year, that is bound to throw almost any service center’s sales formula seriously out of whack.

Industry sales professionals were big beneficiaries of the market shift in 2004, however, watching their earnings escalate right along with the price of steel, and to a lesser degree aluminum and copper. Data from the latest Metal Center News Sales Compensation Survey (see this month’s cover story) indicate that average total compensation for both inside and outside salespeople increased well over 20 percent.

While the typical outside salesperson earned about $75,000 last year, and the typical inside salesperson $50,000, many enterprising individuals in both categories took home six-figure salaries.

To keep sales salaries at reasonable levels, many service center sales managers are revisiting their sales compensation plans: What percentage should be salary, commission or bonus? Should commissions be based on sales, gross profits, net profits or tons sold? Should salespeople receive more for new business vs. maintaining long-time customer satisfaction? How much more valuable are outside salespeople than inside salespeople? Should the system reward individual initiative only or team effort? How can the formula be designed to protect both salespeople and the company from extreme fluctuations in market conditions?

Maurice Loeffel Jr., president of Loeffel Steel Products in Barrington, Ill., says he has tried over and over to devise the perfect sales compensation plan, but usually the formula is either too conservative or too liberal. Currently, Loeffel Steel’s salespeople receive a bonus based on how much they increase their sales from year to year. “Their sales went up huge last year,” Loeffel says. “I rolled the dice [and didn’t change the formula], and now I’ve got some happy salespeople. I hope that built in strong loyalty.”

With a formula focused on increased sales one year to the next, Loeffel salespeople are going to have a battle in 2005, he adds. “If they produced $5 million more last year than the previous year, are they going to be able to do as well this year? If they don’t, there won’t be a bonus.”

Other service centers have responded in different ways. Earle M. Jorgensen Co., for example, felt compelled to cap its sales compensation levels because the growing disparity between sales salaries and the earnings of other employees was causing a morale problem.

It’s not just outside salespeople who are benefiting from the record-breaking market conditions. Inside sales staffs at many companies are enjoying record earnings as well. Bill Vitucci, vice president of Vitco Steel Supply Corp. in Posen, Ill., says inside salespeople have more responsibility today and thus are more highly compensated. “Inside sales responsibilities have changed drastically. There aren’t three people doing data entry anymore, there is just one. So that person is definitely making more money.”

Whether sales professionals can expect their incomes to rise or fall this year depends on metals pricing gyrations, how much service center profitability follows suit, and how management reacts. Most experts agree that with the economy showing sustainable growth, demand for metals should remain strong. Nevertheless, for most salespeople, 2004 is going to be a tough act to follow.