This is the third part in a three part series. In part one, we discussed the first part of the Sales Compensation Diamond. Once you have set Target Pay, Pay Mix, Upside Potential, and Performance Thresholds (the framework of the plan). In the second part, we discussed linking pay, performance measures, and mechanics. It’s time to round out the process with quotas and an evaluation process to make sure this compensation plan works.
Aligning Team and Financials
8. Align the Team A full sales compensation program will include a range of sales, sales support, and management roles. To work together as a team, plan designs must interface as a complete system. This alignment point checks for how sellers will work together as teammates and peers in the sales process that may include business developers, account managers, field representatives, product and market specialists, sales support, and channel partners. This alignment point also checks for vertical integration from the front line up through each layer of management. Does the program promote teamwork or does it have points of potential conflict? Are managers and the front line operating with congruent measures or are there priorities not intersecting?
9. Set Objectives and Quotas Quotas are the linchpin between the sales compensation plan and performance. Objectives and quotas should be market based, representing the relative opportunity in each account assignment or territory, and be created with a process that’s well-understood by reps, optimally incorporating their input. Over time, quota processes for an organization will usually move from more internally or historically-based approaches to more market-based approaches as the market and organization become more developed. Does each rep own a portion of the total business plan that represents a stretch level of achievement? Are quotas forward-looking or steeped in history? Do reps understand and buy-in to the objective setting process?
10. Institute the Governance Process Beyond the core design of the sales compensation plan are processes and policies for operating the broader program. A good governance process is like the constitution of the sales compensation plan that advances it from a set of plans to an effective and impactful program that helps the company grow. Without a clear approach to governance, the organization will probably create the governing laws throughout the year as it goes, sometimes in a reactive mode.
At their worst, some of these situations can create serious liability for the company in the form of employee challenges or suits for disagreements and misinterpretations of the plan. We’ve all heard of courts awarding millions in favor of sales employees who were bilked out of commissions for a major deal that the company thought was outside of the reps’ control and outside of the plan. Is there a well-defined Sales Compensation Constitution? Does it consider the wealth of information the company likely has about past plan operations practices? Is the governance process clear or subject to interpretation, opening the company to increased risk?
Operating for Results
11. Operate the Program With the sales compensation program developed, the sales organization is ready to operate. The first step is communications and roll-out. Actually, communications should start back during the plan evaluation process, with employee and stakeholder input, and continue through the design process with testing and socialization. If the communications process starts with the program introduction, the leadership team may be in a catch-up position.
12. Evaluate the Program Program evaluation should be an ongoing and regular process throughout the year, drawing upon the dashboard and tools to monitor relationships between pay and performance, attainment of goals, differentiation of high and low performers. How does the program operate now? What improvements can be made? How is the plan communicated to our participants? What is the support process to regularly inform and reinforce our messages? Is there a regular plan evaluation process installed to view the performance and impact of the plan at any time, or is it a mad scramble to compile pieces of information from different sources?
Keep this process in your pocket; even have it laminated for your team, because we guarantee you’ll refer back to it, especially when you get deep in the conversations on design and analysis. One of the keys to great sales compensation design is having a playbook for your team that everyone references to make sure you’ve considered each step. With your team’s playbook defined, you can then layer in your strategic alignments, business performance and results, best practices from similar businesses, and the creativity you’ll need to develop an impactful solution for your business.
How does your Sales Comp Plan stack up? Fill out the Sales Compensation Report Card to see if your plan makes the grade.
This post was updated on 9/19/19.