5 Considerations to Design the Perfect Compensation Plan

Compensation is possibly the most important and the most contested part of the sales department.  Heads of sales, human resources, and finance often have different views of what is the optimal compensation structure.  While there are many ways to determine compensation, there are several factors that should be considered when designing your plan.

Design the plan to achieve desired behavioral outcomes — No secret that salespeople will behave in ways that make them the most money.  Think hard about how you want the sales team to act before designing the compensation plan and then design the plan accordingly.

Determine what is a fair and realistic earning of a rep who ACHIEVES goal — If a salesperson hits goal, what do you believe the fair compensation is?  Determine that amount and then back into the commission percentages and bonuses to achieve that mark.

Set the plan to motivate as well as compensate — Everyone needs motivation, and managers need help to motivate their sales force.  Design the plan to motivate throughout the year.  You can do this with pacing bonuses (achieve 25% of quote by X date and receive Y bonus) or by creating commission tiers that rewards sellers to get to the next level.  Not everyone will achieve goal but if you can motivate the top of your sales force to over achieve and motivate the bottom half of your sales force push themselves to achieve just a little more, then the department as a whole can achieve goal.

Base it on desired products — Do you care what product is sold or are some products more profitable, or harder to sell? Base your commission on the organizations desired outcome.  If all you care about is gross revenue, simply compensate on revenue. However, if you have a goal to sell X amount of a product, or to sell Y product, then factor that into your plan.

Compensate sales managers identical to sales representatives — If the organization truly wants to make a push, the managers should be compensated on the same measures as the salespeople.  This will align the interests of all parties involved and allow the manager to work as a teammate.

Of course I would be careless if I didn’t tell you to consult with your finance team to determine acceptable cost of sales, and your human resources team to ensure that your plans are in line with industry standards.

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