Creating an effective sales compensation plan is tough. Your plan must achieve three things:
- Stay within the corporate budget.
- Attract and retain top talent.
- Motivate the sales team to focus on desired behaviors.
Satisfying all three, and managing the ongoing tension between them, is a tall order. You have to create a program that’s both sustainable and highly competitive. To do that, you’ll need to take specific steps in the correct order. And factor in a host of variables.
Today, we’ll cover the essentials.
The costs of a poorly designed comp plan are steep. It All Boils Down to These 7 Questions:
A poorly designed comp plan will wreak havoc. It will drain your profits, encourage bad behavior, and/or drive “A” players away. For the sake of your revenue goal, start with territory design and quota setting. Then tackle each of the items below.
1. How do we accurately benchmark compensation for each role?
Take a look at what your industry competitors are paying. Make sure responsibilities are clearly defined. Take care to avoid costly benchmark mismatches.
2. How do we determine what we want to pay relative to the benchmarks?
Align your budget with what you expect each role to produce.
3. What is the optimal compensation plan design for each role?
Aim for simplicity. Miring your team in complex incentives will create confusion and kill morale.
4. How do we calculate the cost implications of our compensation decisions?
If commissions are growing but sales revenue isn’t, look for these underlying issues.
5. How do we communicate compensation decisions to the team?
With complete transparency, down to the last detail. Our Comp Plan Communications Plan can help.
6. Who should be part of the compensation plan committee to approve changes?
Your sales leader may call for comp plan changes midyear. The HR leader should help the CFO assess the current plan and proposed changes. A thorough analysis will help prevent knee-jerk reactions.
7. How do we measure the effectiveness of our compensation plans?
Measure payout against attainment (quota, MBOs, or company performance). If you can’t measure it objectively, don’t pay on it.
Get This Right, and You’ll Unleash Revenue Growth
The costs of a poorly designed comp plan are steep. High turnover, weak sales, and eroding profits invariably result. A solid plan attracts “A” players, keeps them motivated, and maximizes profits. A thoughtful design process can bring huge revenue gains.
We can help you get there. Register for our 90-minute “How to Make Your Number in 2016” workshop. We’ll give you the tools to build an effective plan. Gauge its effectiveness going forward. And accelerate revenue growth long term.
