Tag Archives: Sales leader

Sales Director Plan Designs – not the same as those for individual sellers

Sales Director comp plans should bear a strong relationship to the plans of the individual sales people, but should also have a few key differences:

  1. Be sure the Director of Sales “wins” when his/her people win. So starting with their compensation plan and aggregating is a good approach for at least one measure.
  2. Even if the individual contributors have a commission-type mechanic (payout is a percent of what is sold), consider a bonus-type mechanic for the Director job (payout is a target amount for hitting goal, less for less and more for over-goal achievement).
  3. If your reporting systems support it, you might consider a measure of “contribution margin” for the Director. That would be [sales] – [cost of sales] – [directly controllable sales operating costs]. That measure rewards the Director for making the right tradeoffs in sales resources to get the maximum contribution from the overall sales force.
  4. Another great idea for sales managers is a bonus based on the number of direct reports who meet or exceed their sales goals for the year. This type measure doesn’t allow riding on the coattails of the over-performers, and encourages good coaching, hiring, and “pruning” of the organization over time.
  5. The pay mix for the Director of Sales is generally less incentive-rich than that for the individual contributors. So if your individual sales people have 60% of their target total compensation in their base (at midpoint) and 40% in their incentive (at target), that’s a 60/40 mix. In that sort of situation, a Director of Sales might have a 70/30, or even a 75/25 mix.

Sales Manager bonus plans

The bonus program that is the best one for your business depends on what your reasons are for offering the bonus. If you are looking for a way to provide additional income for your sales managers in years when it is affordable, and to keep them at least interested in the overall company performance, then a year-end bonus tied to overall company results may be the right answer for you.

However, if you want to motivate and reward for results they themselves are capable of generating, giving them meaningful at-risk pay to “penalize” those who don’t deliver and exciting upside to reward those who really ring the bell, then you might want to consider tying their variable pay more directly to results they can personally control.

A more typical sales management variable pay plan would tie a fixed value incentive opportunity to achieving a sales or gross margin goal, with:

  • No payout for performance before some threshold value (50% – 90% of goal depending on goal setting accuracy and company/market maturity),
  • Increasing (but linear) payout between the threshold and the goal,
  • Accelerated payout (more $/percentage point of goal achieved) for over-goal performance, and
  • Deceleration or a cap at a very high level of performance (110% – 150% of goal, again depending on goal setting accuracy and company/market maturity).