Is your sales compensation plan working for you?

Is your sales compensation plan encouraging the right activities from the sales team?  Are the highest paid salespeople your best performers?  Are you losing qualified sales people because of the design of your sales compensation plan?

All sales compensation plans should be reviewed regularly to ensure they continue to respond to changes in the market. We have run across many clients who designed an incentive or commission plan that initially worked well, only to fail to meet their company’s needs a few years later as market conditions, competition, and company strategies, change.

Periodically review your sales compensation plan to ensure it is encouraging the right sales activities.  This review starts with a look at the sales strategy, to ensure the sales compensation plan continues to reflect the strategy.  For example, are your sales professionals selling the right mix of products and/or services to ensure the highest sales and/or profit?

Sales compensation plans should be reviewed in light of the entire sales system, from sales territory design and channels, to job and organizational design.  In addition, the base salary/incentive mix should appropriately reflect the length of the sales cycle.  Sales professionals are competitive and highly motivated by incentives, so it will become quickly clear if the plan is not meeting the company’s needs.

In addition, whenever a company undergoes a major change in terms of product lines manufactured or represented, or undergoes a merger or acquisition, or other strategic change, the sales strategy, and sales compensation plan, should be reviewed.  The sales compensation plan should clearly reflect the sales strategy.  If this isn’t the case, the sales compensation plan may not deliver the intended results.

On a regular basis, ensure that your sales compensation plans pay out at market rates.  Companies whose pay packages do not reflect market rates are vulnerable to losing their best salespeople, as well as other employees.

Finally, test any new designs with actual sales data.  Once the design is satisfactory, it is very important to ensure that sales professionals have the tools in place, such as technology, and enough face and telephone time, to be successful.