Sales compensation plans: The most complex part of compensation management

by on June 17, 2009 · 0 Comment POSTED IN: HR Info Center

There are so many variables that have to be decided for sales compensation plans and there are no right answers

Sales compensation plans are by far the most complex part of employee compensation. There are so many variables that have to be decided for sales compensation plans and there are no right answers. There’s a – maybe a best answer for a company but this is not something that you can pull off the shell – shelf and implement with salary programs. Pretty much the same process is followed in order to develop a salary program. For a company, sales compensation plans are not quite so easy.

But this is also an area that allows Human Resources assuming they’re involved and I would suggest that Human Resources be involved in sales incentive programs. It is compensation. You do have to look at the market. I would suggest that you handle this in kind of a committee fashion. Because you need that find somebody who has all the skills that’s necessary to help make a sales incentive program happen. You probably are not going to find in too many individuals, but you can find it in different people.

The committee would be the sales group, for sure. And, the reason I say the sales group has to be involved in developing an incentive program for their people. Especially, sales manager or the head of sales has to eventually stand up in front of all their people and tell them why this is the greatest thing since sliced bread and how are they going to make a lot of money off of it. They have to sell and motivate the people. They need to have some say about what’s in the program. Besides they also know lot of the processes and procedures that are followed in sales that will actually determine how you answers a lot of the variable issues that you’re going to be faced with.

Human Resources, generally, should be involved in helping not only design the plan in general, but also, figuring out what the market might suggest in terms of base salary and employee compensation and what the mix may be out there. It should fall in the Human Resources area to actually be the leader in the sales incentive plan design. The third person I will have in this committee is probably the finance area.

You are probably going to have some modeling that has to take place in terms of, if, we do this on the sales plan, how much money will accompany get for sales in this area. And how much will we pay the sales people? And can we still make a profit on it? The one thing that you really don’t want to do is design a sales incentive program where you give away all the profits.

Sales compensation plans can help you achieve the sales objectives. Generally, salespeople happen to be money motivated. So, you tell them what you want them to do and how much money they can get from it and they’re going to go on that direction.

And sales compensation plans also need to reinforce the culture, philosophy and at the same time tells them the priorities. You not only have to set the objectives for the salespeople at the beginning of the performance period. But, you got to tell him what’s more important and – than something else.

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