Sales compensation plans are the most difficult part of compensation

by on June 26, 2009 · 0 Comment POSTED IN: HR Info Center

There is Plenty of Variety in Sales Compensation Plans

You’ll never see the same sales compensation plans being used in two different organizations. They’re always different. They’re different for a number of reasons. There’s different product being sold in different companies. The industry or market segment that you are selling in to could be different. The pricing of your products could be different. The types of people and how you’re organized for the sales process will be different.

You may even have just a difference in philosophy of how certain things should be handled in a sales compensation program. So it is extremely complex. You have to be a little bit careful about what you ask for because you may get what you ask for. And sometimes that has negative consequences for the company.

Human resources should be really involved in this process. At least in designing sales compensation plans. If you think about it, human resources answers they have responsibility for compensation in general, they have some say about the expense side of the equation because compensation expense is for again, like for most companies is the largest expense there is. Here’s a chance to actually be involved in the revenue side of the equation and become a real business partner. Human resources should be involved. And they should be involved actually in a small committee, if you will.

Human resources have to first of all understand what are we targeting for. And they have what are we targeting compensation at. And that includes not only base salaries but incentive comp. Human resources have access to the survey information. Finance, because they can crunch the numbers, bottle the numbers and even calculate the incentive awards that come out of an incentive program. But you don’t really want the sales group to do this. It’s like asking the fox to guard the chicken coup. Finance should have a role in this. But they have to make sure that we’re not going to give away the store by the size of incentives or commissions that we pay the sales force.

And obviously, in here, do you want the sales force involved in this. The sales managers are the guys who are going to have to stand up in front of their sales guys and say, “This is the greatest plan since sliced bread.” Essentially, these are the guys who are going to sell the plan to your sales force and you need to them on board and agree to the changes that you’re about ready to make to any current sales compensation plans you have. And these are also the guys who are going to probably have to make some calls during the course of the year not only explaining the plan to their people but also making some calls on how situations are going to be handled. So all three of those functions need to be involved in the sales compensation plans.

So if you think your department change or human resources changes a lot or other areas of the company change a lot, these sales guys are changing all the time. They’re always looking for a competitive advantage either in how they’re organized, what kind of people they’re attracting, how their incentive program works, etc. They’re changing a lot. The types of changes at least in 2006 that they were looking to make that work generally are these kinds of things in order. Performance measures, formula type, meaning, whether it was a group plan or something else. The pay mix; thresholds in caps and providing enough upside potential to their sales guys. You can do just about anything you want as long as you describe your sales compensation plans and everybody understands what the rules are.

Edited Remarks from “The Seven Deadly Sins of Employee Compensation Plans (and How to Fix Them) by Rick Olivieri

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