Tag Archives: Plan design principles

What your CEO needs to know about your sales comp plans

CEOs don’t need to understand the details of the sales comp plans, but they do need to make sure that a few things are working correctly. Here’s a check-list for what you should be able to demonstrate to your CEO in your next plan review/approval meeting:

  1. The plans are simple and easy to understand. You can explain them to a high schooler who isn’t math-inclined, and they understand them.
  2.  The sales leaders believe the plans are right, and know how to use them to help manage and motivate their team.
  3. The amount of at-risk pay increases with increasing ability to influence individual measurable sales results. And those with less direct influence over results have less risk and upside in their plans.
  4. All incentive measures are objective and financial, except for those used in sales roles with very long sales cycles (market development, huge contracts…) .
  5. If you ask a sales person what they need to do to really make money on your plan, their answer is the same thing you actually want them doing.
  6. The cost of compensation works in your business model. Over a multi-year period, comp cost per person goes up with the labor market (3% or so on average across the team) while sales volume per person goes up faster (5-25%, depending on the stage of the business). This is because the sales leaders are adding to the selling capacity of each person through great tools, smart organization, leveraging good marketing, the right coverage model and market strategy.

How can HR help in designing a game changing sales compensation plan?

Jennifer Frei of Towers Watson Singapore has put together a terrific piece for the HR folks out there who want a “seat at the table” for sales compensation.

Article synopsis:

Many companies actively involve HR in the sales compensation design process to leverage their unique perspectives and skills. In the current economic environment, the need for HR involvement in planning a game changing sales compensation plan is more pronounced, as the pressures on the sales organisation can translate into talent management (e.g. retention and engagement) challenges. Even so, not all sales organisations actively engage HR in the process. Typical reasons given include lack of understanding of “business of sales” (channels, processes and jobs) and lack of understanding of how to involve HR and the value of doing so.

To overcome these and other common objections and partner effectively with sales, HR needs to be able to do several things to “earn a seat at the table”.

Click through for more information and the full article.

How often should the sales compensation plan change?

Most businesses change their sales compensation plan a bit on an annual basis, tuning rates, adjusting goals, possibly adding linkages or adjusting crediting rules. There is value in keeping the basic framework stable as long as it is serving the business well.

However, sales compensation is role-based compensation, meaning that it is carefully designed to reward sales people for achieving the results the business needs.Given the fact that the needs of the business change over time, it is unlikely that the basic plan framework will remain appropriate over a span of many years. For this reason, most businesses make structural changes to their plans every three to five years.