Sales Compensation – 10 tips

Sales compensation is an annual (dreaded) event.  It really does not need to be painful or scary.  Sales compensation is a critical lever to achieving market, product and financial goals.  Here are ten tips for updating or creating a successful sales compensation plan.

1. Keep it simple – No more than three key measures.
2. A performance driven culture – Create a plan where 65% – 75% of the sales team can achieve OTE (on-target-earnings – achieving 100% or more of plan and targeted income).  It motivates everyone!
3. In the drivers seat – Eliminate objectives that are not in the sales person’s direct control.
4. Pedal to the metal – Add over-achievement incentives in areas where the sales person has the highest level of influence.
5. The road ahead – Focus over-achievement incentives on longer range goals to promote consistency and reduce “gaming”, such as annual or quarterly objectives.
6. Teamwork – Sales success today requires team work.  The day of the “lone wolf” is gone. Share recognition and compensation appropriately among team members – prospect development, inside sales, field sales, sales engineering, etc.
7. Annual maintenance – Every year put the bottom 10% – 15% of the sales team on a performance plan.  It doesn’t mean that they need to be fired but focus them on the right mix of activities.
8. Management attention – Put sales management attention on the top performing 50% – not the bottom performing 20%.  You can raise the bar higher at the top, than at the bottom.
9. Manage the mega – Define what a “mega” order is for your business and cap, regress or special handle them.  You do want 1% – 5% to really blow out the comp plan, but you also don’t want to break the bank.
10. Turn off cruise control – Don’t offer guarantees or non-recoverable draw.  They tend to promote “gaming” the system.  Have sales people earn guarantees or non-recoverable draw through performance objectives.  If you do offer guarantees, set a firm expiration date.

Incentive compensation is the most widely used method to focus and motivate a sales force.  Sales compensation plans get out of date quickly, especially as business strategy changes.  Take some time to evaluate this important strategic tool for your business success.