The eight keys to high impact pay for performance plans

by on June 16, 2009 · 0 Comment POSTED IN: HR Info Center

The better your compensation formula -the better your pay for performance plans will be

  1. Payout formula
  2. When you boil everything down to payout formula, it’s the pay for performance plans have a lot to say about how motivated your salespeople are going to be. And there’s many variations on this thing but the example on this page shows the common type of formula or what I call sales producers schemes where quotas are used and target incentive awards are used, which is called an income producer.

    You’ll notice there are several dimensions as we talked about maximums, targets, thresholds I pay for performance. You’ll also note the use of accelerators. All this is kind of built in this table and it’s kind of the guts in sales compensation plan.

  3. Breakpoint in a pay for performance plan
  4. Where you set these brakes in either percent of target incentive paid or percent of revenue paid is kind of critical. And you may want to adjust this in 2009. For example, you may want to lower the threshold to keep your salespeople motivated given the fact that sales are probably going to be more difficult to come by possibility but you may want to do something about that.

  5. Maximum Level in pay for performance plans
  6. You may want to increase the maximum. In some cases, it’s a psychological kind of thing where salespeople see that the amount that they can earn is higher than it was before. And it may keep them motivated and energized for the coming year. Okay, so lots of variations can be done on the sales plan pay off formula. It’s the gut of the sales compensation issue.

  7. Pay for performance plans and goals
  8. So in hard times here’s what I would suggest you do. Review and set the sales strategies and goals. Make sure it’s in line with the company objectives. And I would be surprised if profitability wasn’t one of those objectives for the company. Ensure the quotas are set properly. It’s one of the most difficult things you have to do in your sales comp plan but it’s what’s going to drive the company.

    The company needs a certain amount of revenue and it’s depending on the salespeople to get it. So you have to divvy it up fairly though. Focus on your sales energies on selling more to successful industry territories and customers since certain industries are not going to be hurt as bad as others. Realign your sales force

  9. If you have the manpower, take away some of the administrative responsibilities so they’re actually out on the street.
  10. You want time. You want people’s feet on the street as much as possible.

  11. Sell solutions as opposed to a product.
  12. So it’s a matter of marketing and repackaging your sales efforts to sell an entire solution. And by that I mean you focus on solutions that save time, money or other resources to the customers. And again, I mentioned you may want to revise thresholds or maximums to get the most out of your sales compensation plan.

  13. Document everything in pay for performance plans
  14. When designing sales comp plan or any kind of incentive plan is write the sales plan up in a document. People need to see it so there’s – everybody understands what the rules of the game are. And that’s a bit of an art.

    You know, to state things clearly, concisely in sequential order in documented pay for performance plans. So every word should be chosen carefully that you put in this document. And each participant should receive a copy of this document. And these are the things I would include in the sales incentive plan document.

  15. Be prepared to change your pay for performance system
  16. Be prepared to change to your plan during the course of the year whether it’s the sales plan or some sort of company-wide bonus program. Change the plan if it doesn’t seem to be getting the results that you’re looking for, okay?

    Legally you can do just about anything you want as long as everybody understands the rules, okay? So some red flags will pop up. Is the company getting the return on its investment? How many exceptions were made, et cetera. Ask yourself these questions during the course of the year so see how effective your plan really is.

    If we do everything right, we can get all these kinds of benefits from pay for performance. Clearly communicated, everybody understands, the rewards are calculated fairly easily and payouts are made on a timely basis, employees believe they’re treated fairly, they trust the companies, et cetera. There’s lots of benefits in addition to actually helping achieve the company’s financial or strategic objectives.

Edited remarks from the Rapid Learning Institute webinar: How to Set up Fair and Effective Pay Plans in an Uncertain Economy by Rick Olivieri

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