Top 10 Things to Consider when Designing Sales Compensation Plans

1. 1. What behavior or results are you trying to influence? Different sales roles and different sales cycles will benefit from different influencers.
2. 2. What metrics are the best measurements of achievement of these results or behavior you are seeking to influence?
3. 3. How many metrics do you really need, and at what point do several become too many? There is a diminishing effect of influence when there are too many metrics or components to a compensation plan.
4. 4. How frequently should your sales people be getting paid their bonus or commissions and are their goals monthly, quarterly and/ or annually?
5. 5. How will you measure the results? What data do you need, when do you need it and in what format? Be sure you can get the data and in the form you need in the timeframe you need it in to pay commissions or bonuses.
6. 6. Are your goals or quotas achievable and do your sales people realize and believe this?
7. 7. What caveats, exclusions, or exceptions if any do you need to include in your plan so that you are not rewarding people for activities that you do not want to happen, and so people are not exploiting loop holes in the plan (they will be there in some way shape or form).
8. 8. If an employee leaves the company on their own accord, is terminated, or transfers internally to another role what rules are in place (within the plan terms) to determine how they get paid? Look at all possible scenarios to be sure your termination clause addresses them.
9. 9. Perform some "what if" scenarios to see what can happen in a variety of scenarios. This is often referred to as Plan Modeling and can and should be done at several stages along the way. This will allow you to not only see what people could earn at different levels of performance but also to compare different plans.
10. 10. Put yourself in the salespersons shoes and try to see if you can find a loop hole, sweet spot, or how you would behave under this plan.

It’s the Strategy Stupid!

One of the biggest mistakes business owners make in terms of developing or implementing a business strategy is that they confuse strategy with tactics.

Their changes in tactics may generate minor improvements, sometimes temporary ones, or they could just be rearranging deck chairs on the Titanic.

It seems a part of human nature to go after the low hanging fruit and to many business owners the tactics are just that, things they can reach and tweak right away.

In her book Being Strategic, Erika Andersen points out how people tend to rush in to developing and implementing tactics prior to creating the strategy. She says “Being strategic means consistently making those core directional choices that will best move you towards your hoped-for future.” Notice she says being strategic implying it is an ongoing state of mind not just a one time decision.

She also provides some common sense advice about not only articulating what your “hoped-for future” looks like, but also taking the time to assess where you are now. It’s a gap analysis that requires you look at the terrain and potential obstacles between you and your goal.

In addition to Erika’s assessment of creating a strategy I would add that the strategy is the foundation upon which everything else is built and needs to be solid so it can support the rest of the complementary roles, structures, etc.

So before you redesign your comp plans or hire that next sales person take a moment to step back and be strategic. Forget for a moment what you have in place and imagine for a moment what your goal is and what your strategy would be if you could start over fresh.

Quotas Need to be Measurable and Attainable

The better your sales reporting and analysis the more accurate your quota setting can be. When setting quotas think about the attainable outcomes and what results you desire once the actual revenue is counted. In addition to the numerical outcomes you also need to consider the effect your quotas will have on motivation and morale.

The measurable part of this needs to be thought out ahead of time. Too often this is an after thought causing an inordinate amount of work to figure out who sold what.

Quotas need to be set so your compensation plan can reward those who meet and exceed quota while letting those who under perform see how their lack of performance negatively affects their commissions.

What Do You Have to Do to Get Fired at this Company?

So many companies have these people, the ones who everyone else is wondering how they didn’t get fired for their latest screw up, for sleeping on the job, or some other offence the average employee would be let go for.

In his book “Good to Great” Jim Collins said it was important to get “…the right people on the bus, the right people in the right seats and the wrong people off the bus”. The last part is usually the hardest for so many reasons, especially the precedent set by their boss for not firing them for egregious offences, that now when responsible for taking the company to the next level they are incapable of letting them go.

While this may sound cold to some, the real victims of keeping someone like this employed are the good employees who choose not to rock the boat. Your covering for the bad employee is like second hand smoke slowly killing off the good employees or at least their will power to be a better employee. After all, if so and so comes in late every day, is not qualified to perform the basic duties of their job why should the other employees feel inclined to put in the extra effort.

Don't Be a Hippo

In this case HIPPO stands for the Highest Paid Person's Opinion. While you may have risen to the position you are in based on hard work, skill, and/or your intellect you may not always be the most qualified to have your opinion be the “right one” every time no matter what the subject matter.

Consider an advertising campaign your company is developing that is geared at a twenty something demographic (you passed your twenties several exits ago) that your Marketing Team is pitching. For argument’s sake let’s consider at least one of the Marketers in the same age demographic as the target audience. They may show you several concepts or rough drafts that you personally don’t like. Does this mean that people in their twenties won’t like it? Are you qualified to go to iTunes and pick out five albums someone this age would actually like? I thought so. How is this any different?

If you hire experts to do a particular job you need to be aware of what you are doing when interjecting your opinion when it may not be the most valuable.