In an era of unpredictable economics and profitability, travel agencies must lower base salaries to truly affordable levels – and yet still be able to attract high quality agents who can service increasingly knowledgeable and demanding customers. The key is to pay incentives for excellent service and revenue generated above an agreed-upon threshold. Agents become personally accountable for meeting their goals and earning an incentive. If the agency has budgeted properly, it should be able to pay base salaries and earn a profit. Incentives are only paid out if agents have earned appropriate revenue levels (2.5 x revenue vs. salary).
Making Pay for Performance/Variable Pay Work
Any major change in pay and incentive structure must be sponsored and enthusiastically supported by senior management. Senior management must enroll employees to focus on results: employees must truly change their behavior in a way that results in greater agency profits.
Any change in compensation will encounter resistance. Change must be managed. The communication plan must address this continuously. Generally speaking, a pay for performance incentive plan will succeed if it is focused on goals
o over which employees have control,
o that employees understand how to achieve,
o that can be objectively measured,
o that can generate regular feedback.
The plan must address both base compensation and incentives. Employees must understand and accept the distinction between compensation and incentives. Employees must believe in the basic equity of base salary levels before they will buy in to a pay for performance incentive system. Annual compensation surveys can help agencies assess their pay levels against comparable companies and relevant labor markets. Equitable base pay decisions must reflect:
o Technical and leadership skills
o relevant prior experience
o Track record of performance
o Equity with peers having comparable experience, skills and performance levels
o Available budgets
There must be a transparent rationale for employees with similar evaluation ratings receiving different base pay:
o Job content/responsibilities
o Time in current position
o Organizational performance of the unit
o Sustained performance over time
o Levels of work experience (internal and external)
o Possession of critical skills
o Education or training
Although equity with current employees must always be considered when bringing in new hires, employees must also understand why some new employees are hired at higher base salaries than existing employees. Salary decisions are based on consideration of a wide range of factors, including skills, experience, marketplace conditions, local competition for particular types of roles, etc.
It is very important to make sure employees are being compensated for doing the right thing. Incentives must be aligned with such corporate or agency priorities as:
o Ensuring all agencies are profitable
o Leveraging preferred supplier products
o Reducing employee attrition
o Using technology to improve service/productivity
o Focusing on productivity
o Customer satisfaction
Each incentive represents a part of what it takes to increase profits. Obviously, if incentives are going to be aligned with a strategic priority, it is necessary to measure that priority. You can’t reward what you don’t measure. Revenue goals and preferred supplier sales are easily measured and rewarded.
Travel suppliers will always try to lower expenses to stay competitive and alive. Travel seller compensation represents the lion’s share of the agency’s costs, so they must focus attention in this area to show a positive impact on profits. Moving a portion of travel seller compensation from a fixed cost to a variable cost will help achieve this goal. Aligning the pay program to the organization’s strategic goals will help keep the travel sellers focused on the desired outcome.
A combination of the pay for performance/variable pay programs described above for full time travel sellers plus carefully designed compensation programs for outside sales representatives and independent contractors will lower an agency’s expenses and contribute to greater profitability. Implementing any such program requires time for employees to adapt to the change; agency management can facilitate this process with effective communication, training, and persuasion.
Travel business consultants such as Travel Business CPR will investigate the best compensation programs and design one for your agency(ies).