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Just as sales compensation design doesn’t begin with mechanics and calculators, it doesn’t end there, either. Here are five steps sales leaders should take after the plan is fleshed out, as well as some questions to consider.

1) 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 business developers, account managers, field representatives, product and market specialists, sales support, and channel partners will work together as teammates and peers in the sales process. In addition, system implementers should check for vertical integration from the front line up through each layer of management.

Questions to consider: 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?

2) 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 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.

In early stage companies or newer markets, an organization may allocate the same goal to each rep, with the assumption that each has similar market opportunity and sales capability. While this may hold true over a period of years for a new business developer with an unbounded territory, the normal growth of accounts will usually accumulate to create an installed base of recurring or expected revenue for each rep that will vary by territory or account assignment. Reps with more established accounts may carry a larger installed revenue base than those with newer accounts.

For many companies, looking at historic performance and projecting a trend forward seems to work for a period of time. However, they quickly learn that they’re either saddling their highest performers with ever-increasing goals or overpaying reps who manage large bases of slow growth recurring revenue while under-rewarding the brave new business developers bringing in new customers.

Questions to consider: 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?

3) Institute a 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 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 the company thought was outside of the plan.

Questions to consider: 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?

4) Operate the program.

With the sales compensation program developed, the 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.

Operating the program throughout the year will draw from all of the strategic connections made, components designed, and governance established. From a tactical standpoint, technology may also be leveraged to track performance, administer pay, and provide a communications portal for the reps and management.

Questions to consider: How is the plan communicated to our participants? What is the support process to regularly inform and reinforce our messages?

5) 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, and differentiation of high and low performers. 

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.

Questions to consider: How does the program operate now? What improvements can be made? 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?

Editor's note: This post has been adapted from the book What Your CEO Needs to Know About Sales Compensation and is reprinted here with permission.

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Originally published Mar 24, 2015 9:00:00 AM, updated July 28 2017

Topics:

Sales Compensation