Sales Compensation Plan DesignHR Resource
July 30, 2012 — 1,974 views
As a payroll manager, likely one of the most difficult aspects of your job is determining how sales professionals should be compensated for their performance. Developing your company's sales compensation plan design can be challenging, but it is important for the growth of your business and for the encouragement of the sales team.
According to Inc. magazine, you need to create a compensation plan that will encourage your sales force to continue upselling customers and landing new accounts. This often requires you to find the right balance between base pay and commission, states the publication. However, in order to do this, you need to figure out how your company will determine performance measures and how you will set parameters for performance scaling.
"It's probably one of the fundamental keys for success for a business, provided they have a sales force - which would apply to the vast majority of businesses," Jim Stoeckmann of WorldatWork told the magazine. "Going to market is really a fundamental part of planning your business. The compensation plan is how you operationalize the sales force, get them aligned with the business goals and get them motivated and driven to implement your go-to-market strategy."
If you're considering creating a new sales compensation plan or revamping your current one, Entrepreneur magazine explains it may be a good idea to hire a compensation specialist to assist you. This is a comprehensive undertaking that can have a major impact on your bottom line, so professional suggestions can be beneficial.
However, there are a few key tips to designing a sales compensation plan that you should keep in mind. The source states you should start by keeping your top sales professionals in mind. Your plan should recognize and reward your sales superstars, the top performers. A tiered plan often entices a money-motivated sales team member to sell more every month. Furthermore, the magazine reports that typically one to three percent of the amount available for sales commissions or bonuses should be saved for contests among the sales representatives.
Inc. states that the compensation plan should be made available to the entire sales force and include the following elements: strategy, performance measures, payout formula and governance. The payout formula may be the most important aspect of the plan, as it details how employees will be paid in regards to commission for sales.
Although, payroll managers should remember that no matter the plan, communication with the sales department is key to implementing a successful and effective compensation plan and boosting employee performance.