The document proposes several new compensation plan scenarios for sales representatives and models their impact. It finds that lowering the hourly rate and increasing commissions per activation results in a "wealth transfer" where representatives with fewer than 22 activations per month see reduced pay while those with more see increased pay. A one-page matrix compares the key data of 7 combinations of fixed and variable pay to help decide the most appropriate new plan.

1. SALES COMP PLANNING
February 23, 2004

2. CURRENT SITUATION
• We pay $7.25/hr + $17 per Activation
• We have 70°/o of our Comp Pay as Fixed,
only 30°/o is Variable
• We have 30°/o of our Reps achieving 0-9
Activations per Month, and they do not
generate enough Gross Margin to "cover"
their fixed labor costs (another 20°/o get
10-19 Activations/Month)

3. NEW IDEA
• Why not drop the hourly rate significantly,
and consider the base wages as a "draw"
against commission?
• Instead of $7.25/Hr + $17/Act, why not
something like $3.00/Hr +$50/Act?
• Could we go as far as NO hourly wage +
$75/Act, a Ia Wireless Solutions?

4. ASSIGNMENT
• Let's model the current environment, add
some "what if's" under different possible
scenarios, and "try them on for size"
• How to do that?
• Pickering spends 20 hours over the
weekend building and validating the
models, and prepare a summary for
Monday's discussion

5. ASSUMPTIONS
• September 2003 Activations (77K)
• These activations are paid in November
• 3,600 Sales Reps (exclude FMs)
• SIS only (for now)
• Base Pay and Phone Comm only (for now)
• Excludes Accessories, Spiffs, Bonus,
Dish, Training, OT, etc.

6. ASSUMPTIONS (Cont'd)
• By "backtesting" against prior period data,
we can validate the components of cost
plus the total cost of various options
• However, this is a "static" model test (total
pay &total activations were kept constant)
• When we actually change the camp plan,
SR behavior will change (some will move
"up" and some will move "out)

7. STRATIFICATIONS
• We have a diversified population of reps
• Stratify by activations/month (1-155)
• Mean (Average) is 21 activations/month
• Stratify by Hours Worked/Month (grouped
into major categories: 0, 40, 60, 80, 100,
120, 140, 160+ hours/month)
• Mean (Average) is 116 hours/month

8. PAY VARIANCE GRAPH
• This graph shows the change in total pay
for implementing the New Plan vs. the Old
Plan
• The overall average impact of the $3.00/Hr
+ $40/Act plan is a "wealth transfer" from
those who achieve <22 activations/mo. to
those who achieve 23+ per month
• The "cutover point" is different for each
hourly strata and for each possible $/Hr +
$/Act combination

9. f.fl-
U.I
20,000
0
(20,000)
~ (40,000)
~
~
~
>-<(
a.
_J
(60,000}
~ (80,000}
0
1-
(100,000}
(120,000)
(140,000)
TOTAL PAY VARIANCE· OLD VS. NEW $3.00/Hr. + $40 Avg Comm
""'•:•,•,•,•,•,•,•:••,•,•/',•,•,•,•,•,•,•,•lli,illi, lll~UIJdJ,lbtdi,!,~/IIII,IJj~,J,,Inl'ln,,o,o,o,o, ;,"''1,1/, ~~'ln'c',;,~,m' ,J,''' ,cccln,,' n,,'
43 49 55 61 67 73 79 85 91 97 103 109 115 121 127 133 139 145 151 157
ACTIVATIONS

10. COMPENSATION/HR GRAPH
• The Old Plan (darker diamonds) is a flatter
line, starting at $7.25/Hr and extending up
to around $20.00/Hr for top SR's
• The New Plan (lighter squares) is a
steeper line, starting at $3.00/Hr and
extending up to $35-$40/Hr for top SR's

11. TOTAL COMPENSATION PER HOUR
45.00
IIi
40.00 111!11~
NEW II
!
35.00 II
I~~·--·- ..---
-~~
II
••IIIII
30.00
tY-
Illig llfl
5 25.00 .--~-~-~6 - -- -
IIi Ill
• •:c II
•0:::: •
~ 20.00 ••~~ ........
l
(F)-
. ... OLD
,~··- 'f/111111
15.00 ..,.~~~· .
10.00 I
I5.00 ---·-···- -------- ~!
0.00 r-BIII-
• 11181111 llllli.IHIII M4l ' I
0 20 40 60 80 100 120 140 160 1801
ACTIVATIONS PER MONTH I
I

12. STACKED AREA GRAPHS
• The next two graphs show fixed pay and
variable pay under the Old Plan vs. the
New Plan
• The huge 'Shift into variable pay (darker
area) is evident.

13. 125,000
CURRENT FIXED &VARIABLE PAY MIX
.__100,000 --- -(f)
0
(J
!z
!0
I~ 75,000
:(f)
iz
I l.U
in..
~ .
0 50,000
u
,-I
i<l:
It-
: ~ 25 000I '
I
I
I
i
0
I VARIABLE]
1 10 19 28 37 46 55 64 73 82 91 100 109 118 127 136 145 154
ACTIVATIONS

14. 125,000
t-100,000
en
0
u
:z
0
i= 75 000
<:( '
en
z
UJ
0..
~ 50,000
(.)
_J
~
0
1:- 25,000
0
NEW IDEA $3.00 &$40/ACT FIXED &VARIABLE PAY MIX
I VARIABLE I
1 10 19 28 37 46 55 64 73 82 91 100 109 118 127 136 145 154
ACTIVATIONS

15. COST/ACTIVATION GRAPH
• Under both plans, we have very steep
leverage downward of cost/act from 0-9
activations and we have a relatively flat
cost/act after exceeding 50 activations/mo.
• The crossover point is 22 activations/mo.
• At 9 acts/mo, the New Plan has a $75/act
cost, where the Old Plan was $1 02/act
• At 6 acts/mo, the New Plan has a $92/act
cost, where the Old Plan was $143/act

16. z
0
-
350
300
~ 250
>
t=
~ 200
0::
w
0...
~ 150
0
u
100
50
0
TOTAL COST PER ACTIVATION
----- - ,_ -- I
' I I
- - =.1 ~..·r=t-=:.=t=:_: 1 ~ =:. =1.
·!fi----t-----t--~--t--+----+------+----111-t---,i----11!1 IIBtHI, lljHII!I J--..J--.J
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160
ACTIVATIONS PER MONTH

17. ONE-PAGE MATRIX
• This page contains the key data to analyze
the differences of 7 possible combinations
of fixed and variable pay
• All the detail of each has been tested
• We have to decide which mix of fixed and
variable is most appropriate
• We have to be ready to replace people we
will lose

18. ·.:.·, MONTHLY COMMISS;~~ RATE ~OivirA~iSJN TABLe· HOLDING Fi.JLL $FLAT
REVENUE GROSS PROFIT EE COMMISSIONS BASE PAY
Activa- Sept Gross Total EE EE Comm Base Base
Rate Plan tion Activa- Profit Gross Comm Comm %Gross Pay Pay
Strata Mix !ions $/Act Profit$ Rate $ Profit $/Act $
(A) THE WAY WE'VE BEEN DOING IT($7.25 AVERAGE WAGE)
0.00-29.98 18.8% 14,524 60.71 881,748 10.00 145,240 16.5% 39.51 573,869
29.99-39.98 21.3% 16,437 151.32 2,487,230 15.00 246,555 9.9% 39.51 649,455
39.99+ 59.8% 46,090 201.02 9,264,966 20.00 921,800 9.9% 39.51 1,821,097
100.0% 77,051 163.97 12,633,944 17.05 1,313,595 10.4% 39.51 3,044,420
(B) SUGGESTION FROMTHE LAST MEETING (SAME WAGE, ADJUST COMMISSIONS/RATE PLAN)
0.00-29.98 18.8% 14,524 60.71 881,748 8.00 116,192 13.2% 39.51 573,869
29.99-39.98 21.3% 16,437 151.32 2,487,230 15.00 246,555 9.9% 39.51 649,455
.39.99+ 59.8% 46,090 201.02 9,264,966 25.00 1'152,250 12.4% 39.51 1,821,097
100.0% 77,051 163.97 12,633,944 19.66 1,514,997 12.0% 39.51 3,044,420
(C) DOWNWARD REVISION NECESSARYTO MATCH COMP $($7.25 AVERAGE WAGE).. .
0.00-29.98 18.8% 14,524 60.71 881,748 6.00 87,144 9.9% 39.51 573,869
29.99-39.98 21.3% 16,437 151.32 2,487,230 16.00 262,992 10.6% 39.51 649,455
'39.99+ 59.8% 46,090 201.02 9,264,966 21.00 967,890 10.4% 39.51 1,821,097
100.0% 77,051 163.97 12,633,944 17.11 1,318,026 10.4% 39.51 3,044,420
(D) NEW IDEA $6.00 BASE + $24WEIGHTED AVERAGE COMMISSION
0.00-29.98 18.8% 14,524 60.71 881,748 8.00 116,192 13.2% 32.70 474,926
29.99-39.98 21.3% 16,437 151.32 2,487,230 21.00 345,177 13.9% 32.70 537,480
39.99+ 59.8% 46,090 201.02 9,264,966 30.00 1,382,700 14.9% 32.70 1,507,114
100.0% 77,051 163.97 12,633,944 23.93 1,844,069 14.6% 32.70 2,519,520
(E) NEW IDEA $5.00 BASE + $29 WEIGHTED AVERAGE COMMISSION
0.00-29.98 18.8% 14,524 60.71 881,748 11.00 159,764 18.1% 27.25 395,772
29.99-39.98 21.3% 16,437 151.32 2,487,230 28.00 460,236 18.5% 27.25 447,900
39.99+ 59.8% 46,090 201.02 9,264,966 36.00 1,659,240 17.9% 27.25 1,255,929
100.0% 77,051 163.97 12,633,944 29.58 2,279,240 18.0% 27.25 2,099,600
(F) NEW IDEA $4.00BASE +$35WEIGHTED AVERAGE COMMISSION
0.00-29.98 18.8% 14,524 60.71 881,748 13.00 188,812 21.4% 21 .80 316,617
29.99-39.98 21 .3% 16,437 151.32 2,487,230 32.00 525,984 21.1% 21.80 358,320
39.99+ 59.8% 46,090 201.02 9,264,966 43.00 1,981,870 21.4% 21.80 1,004,743
100.0% 77,051 163.97 12,633,944 35.00 2,696,666 21.3% 21.80 1,679,680
(G) NEW IDEA $3.00 BASE + $40 WEIGHTEDAVERAGE COMMISSION
0.00-29.98 18.8% 14,524 60.71 881,748 14.00 203,336 23.1% 16.35 237,463
29.99-39.98 21.3% 16,437 151.32 2,487,230 37.00 608,169 24.5% 16.35 268,740
39.99+ 59.8% 46,090 201.02 9,264,966 50.00 2,304,500 24.9% 16.35 753,557
100.0% 77,051 163.97 12,633,944 40.44 3,1 16,005 24.7% 16.35 1,259,760
(H) NEWIDEA $2.00 BASE +$46 WEIGHTED AVERAGE COMMISSION
0.00-29.98 18.8% 14,524 60.71 881 ,748 17.00 246,908 28.0% 10.90 158,309
29.99-39.98 21.3% 16,437 151.32 2,487,230 43.00 706,791 28.4% 10.90 179,160
39.99+ 59.8% 46,090 201:()2 9,264,966 56.00 2,581,040 27.9% 10.90 502,371
100.0% 77,051 163.97 12,633,944 45.88 3,534,739 28.0% 10.90 839,840
(I) NEW IDEA $100 BASE+ $51 WEIGHTED AVERAGE COMMISSION
0.00-29.98 18.8% 14,524 60.71 881,748 19.00 275,956 31 .3% 5.45 79,154
29.99-39.98 21.3% 16,437 151.32 2,487,230 47.00 772,539 31.1% 5.45 89,580
39.99+ 59.8% 46,090 201.02 9,264,966 63.00 2,903,670 31.3% 5.45 251,186
100.0% 77,051 163.91 12,633,944 51.29 3,952,165 31.3% 5.45 419,920
(J) NEW IDEA $0 00 BASE+ $57WEIGHTED AVERAGE COMMISSION
0.00-29.98 18.8% 14,524 60.71 881,748 21.00 305,004 34.6% 0.00 0
29.99-39.98 21 .3% 16,437 151.32 2,487,230 51.00 838,287 33.7% 0.00 0
39.99+ 59.8% 46,090 201.02 9,264,966 70.00 3,226,300 34.8% 0.00 0
1100.0% 77,051 163.97 12,633,944 56.71 4,369,591 34.6% 0.00 0
*NOTINCLUDING ACCESSORIES, SPIFF, DISH, BONUS, OT, TRAINING, OR ACCF.! ERATOR
Base
%Gross
Profit
65.1%
26.1%
19.7%
24.1%
65.1%
26.1%
19.7%
24.1%
65.1%
26.1%
19.7%
24.1%
53.9%
21.6%
16.3%
19.9%
44.9%
18.0%
13.6%
16.6%
35.9%
14.4%
10.8%
13.3%
26.9%
10.8%
8.1%
10.0%
18.0%
7.2%
5.4%
6.6%
9.0%
3.6%
2.7%
3.3%
0.0%
0.0%
0.0%
0.0%
TOTAL REP COMP* I
IOta!
Pay
$/Act
Total Total Pay
Pay %Gros~t
$ Profit [
49.51 719,109 81.6%
54.51 896,010 36.0%
59.51 2,742,897 29.6%
56.56 4,358,015 34.5%
47.51 690,061 78.3%
54.51 896,010 36.0%
64.51 2,973,347 32.1%
59.17 4,559,417 36.1%
'"'--
45.51 661,013 75.0%
55.51 912,447 36.7%
60.51 2,788,987 30.1%
56.62 4,362,446 34.5%
40.70 591,118 67.0%
53.70 882,657 35.5%
62.70 2,889,814 31.2%
56.63 4,363,589 34.5%
38.25 555,536 63.0%
55.25 908,136 36.5%
63.25 2,915,1.69 31.5%
56.83 4,378,840 34.7%
34.80 505,429 57.3%
53.80 884,304 35.6%
64.80 2,986,613 32.2%
56.80 4,376,346 34.6%
30.35 440,799 50.0%
53.35 876,909 35.3%
66.35 3,058,057 33.0%
56.79 4,375,765 34.6%
27.90 405,217 46.0%
53.90 885,951 35.6%
66.90 3,083,411 33.3%
56.78 4,374,579 34.6%
24.45 355,110 40.3%
52.45 862,11.9 34.7%
68.45 3,154,856 34.1%
56.74 4,372,085 34.6%
21.00 305,004 34.6%
51.00 838,287 33.7%
70.00 3,226,300 34.8%
56.71 4,369,591 34.6%
VAR VS. FIXED
Variable . Fixed
%of %of
Total Pay Total Pay
20.2% 79.8%
27.5% 72.5%
33.6% 66.4%
30.1% 69.9%
16.8% 83.2%
27.5% 72.5%
38.8% 61.2%
33.2% 66.8%
13.2% 86.8%
28.8% 71.2%
34.7% 65.3%
30.2% 69.8%
19.7% 80.3%
39.1% 60.9%
47.8% 52.2%
42.3% 57.7%
28.8% 71.2%
50.7% 49.3%
56.9% 43.1%
52.1% 47.9%
37.4% 62.6%
59.5% 40.5%
66.4% 33.6%
61.6% 38.4%
46.1% 53.9%
69.4% 30.6%
75.4% 24.6%
71 ..2% 28.8%
60.9% 39.1%
79.8% 20.2%
83.7% 16.3%
80.8% 19.2%
77.7% 22.3%
89.6% 10.4%
92.0% 8.0%
90.4% 9.6%
100.0% 0.0%
100.0% 0.0%
100.0% 0.0%
100.0% 0.0%