Sales compensation plan: The most complex topic in compensation management

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

Sales compensation plan has more variables than any other type of compensation plan

A Sales compensation plan in my opinion is the most complex area of compensation bar none by far. The reason is that there are so many variables involved in developing plan that each company has many possible permutations or commutations of how they mix and match the responses to these variables when developing their own plan. That’s why you never see the same sales compensation plan in two different companies.

This is not an area where you can buy a cookbook to learn how to design a sales compensation plan. Every situation is different and the sales plan should reflect those differences. If you’re not currently involved in the sales compensation area, though now is a good opportunity for you to be a real business partner.

HR and the sales compensation plan
If you’re in the human resources area, you already have a lot to say about compensation expense. And with sales compensation you actually will have some say about the revenue side of the equation. And after all, what you’re company is looking for is revenue minus expenses equal profits.

There are lots of questions though you’ll need to be addressed as you move forward to outline and develop your sales incentive plans. And you know, and you should look at it every year in this slide. What does the market pay for target total cash? By that I mean base salary plus target incentive.

Mix in a salary compensation plan
What should the mix between salary incentive or commissions be? What type of people do we want to attract and retain? I generally put people on a continuum – salespeople on a continuum between – on one side you have the hunters – these are people who generally sell to existing customers, and farmers on the other side of the continuum that – I’m sorry. Farmers sell to existing customers. Hunters sell to brand new business. They’re actually paid a lot differently.

Metrics and goals in a sales compensation plan
What do we really want these people to do? What is the sales cycle? How much selling is really required? Are they order takers? Are they really hard selling? And what is the balance between existing and new customers? And are there product services more profitable than others? After all, there’s only one thing better in a sales compensation plan than raw increases in revenue and that’s increases in profitable revenue.

And I would be amazed if your own company weren’t asking the salespeople to somehow sell more but sell profitable revenue as opposed to just generate revenue. So work in profitability if you can in the sales plan. It’s difficult but it can be done.

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

Leave a Reply


Request a Free Demo

We'd love to show you how this industry-leading training system can help you develop your team. Please fill out this quick form or give us a call at 877-792-2172 to schedule your one-on-one demo with a Rapid Learning Specialist.