Maximize Your Sales Compensation Plans Effectiveness

by on June 22, 2009 · 0 Comment POSTED IN: HR Info Center

Sales Compensation Plans vary from company to company

Sales compensation plans are the most complex part of compensation. Mainly because every company has different products, different industry, different pricing schedule, different types of people that they’re hiring, different types of jobs that they have, different organization, and even, different philosophy of how to pay and compensate the sales people. That’s why sales compensation plans rarely show up the exact same way in two different organizations. Everyone does it a little bit different.

And because there are so many variables, it’s one of the more complex parts of compensation. Putting together almost a committee to handle this may be worthwhile because of the number of variables involved, type of variables and the disciplines required to really do sales compensation plans effectively. You probably need somebody from the sales force, finance, and Human Resources. There’s no reason that you can’t work together and develop an incentive program. To do sales compensation plans effectively, you really have to understand how the company makes its money. And by learning that, it’ll make you more effective not only on sales or compensation areas but also on Human Resources.

Mix Salary and Incentives
If you don’t know what accelerators are, they are extra pops in money should they exceed expectations. Thresholds are the minimum level required in order to pay any bonus at all. And caps or maximums are things like how much can any individual earn off the incentive program and then generally what the upside potential may be.

There are lots of questions you have to address when talking about sales compensation plans. The first is to look at the target total cash in the marketplace. You want to pay that out if you’re a sales person achieves his objectives or her objectives right on. That’s the goal. Target total cash is actually base salary plus target incentive. Incentives will vary from year to year. Target incentives hardly ever change for a particular position. You want your salaries and your target incentives to match that target total cash in the marketplace. From there, how you mix the salary and the incentive between the two to reach this target total cash, in some respects is a very internal type of decision, but there are limits on how far you can go in this area.

Understand the Organizational Structure
Another thing you need to figure out is your organizational structure and the kinds of jobs that you have in the sales organization.
Some organizations emphasize new business. Some organization emphasize the selling to existing businesses, most organization want both. And the reason is that the greatest opportunity for increasing revenue is by bringing in new business.

When you do sales compensation plans there should be some OD staff involved in it. How are we organized? What do we really want these people to do? And sometimes that’s easier question to ask than it is to be answered even by the head of sales. Because they go back and forth, you can see that the amount of changes that the sales organization goes through on a year-to-year basis, part of that has to do with how we’re organized and what people we’ll actually be dealing? What kinds of products they will be selling? Into what market niches? You divide geography, your type of customer or type of account, et cetera, that seems to be always shifting.

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