A value-creating plan document includes the following sections:

 Overview

The overview of the plan outlines the go-to-market strategy of the company, names the specific jobs that are eligible for the particular plan, describes the go-to-market strategy of the company, discusses the pay mix of base salary and target incentive and how it was set, presents an overview of the plan components, and specifies the amount of target incentive and the amount paid on each when the sales reps makes their goals.

Component Details

The pay components are then outlined in detail, arranged from highest weighted to lowest weighted to emphasize and communicate the degree of importance to the sales rep.  Included in the component detail is a description of frequency of incentive payout, how results are measured, and what level of performance constitutes minimum, target, and excellence expectations.  Also, using these levels as anchors, tables are generally included to show the percentage or actual amount of incentive payout.  Incentive calculation examples show the sales rep how to calculate the incentive earnings based on performance assumptions – these examples should always illustrate the sequential step format of the calculation.

Terms and Conditions

Plans should always include a section on the terms and conditions which may also highlight administrative provisions.  Typically, this section of the plan includes items such as:

• the plan term, e.g., January 1^st to December 31^st,
• payment eligibility provisions,
• documentation required for sales crediting,
• the implications for falsifying or manipulating sales information,
• company policies on extraordinarily large sales,
• how windfalls and shortfalls will be treated for sales crediting,
• the conditions for incentive pay chargebacks, timing or payments,
• incentive pay guidelines for new hires and transfers, and
• the benefits eligibility/treatment of incentive pay.

In some cases companies make the terms and conditions a separate document for easier updating as situations arise that require addition of revision of administrative provisions.

Acknowledgment Page

The acknowledgement page has language where the sales reps confirm that they have received a copy of the plan document, had questions addressed by management, and understand the terms and conditions of the plan.  Once they sign the page, it is usually then signed by their immediate manager, and the next level of management; and a copy of this page is then forwarded to Human Resources to be filed in the sales reps’ personnel file.  In some cases no payout is made until this page is completed.  Because the plan often becomes a legally binding contract between the company and the sales rep it should be reviewed by legal counsel before it is distributed.

Management should never lose sight of the fact that the sales compensation plan is one of several communication tools used to inform and motivate the sales reps when changes are being made in the company’s go-to-market strategy.  For its term, it is the reference point for resolving payout calculation disputes and for determining incentive payout amount due in the case of terminations, transfers, and promotions.  A carefully crafted plan document will cover most issues that arise during its term; however, it is important for sales management, legal, and human resources to review it each plan change to take into account new or unusual situations that have occurred in the day-to-day administration of the plan that may need to be clarified when producing in the next version.

Effective compensation starts with effective plan design. With the right kind of compensation plans, companies can reward desired behaviors to produce desired results and achieve transformational revenue goals—each month, every quarter, and every year.

It’s safe to say your company’s success next year hinges on what sales compensation plans you develop today, so discover the importance of proper plan design. Learn how you can successfully balance the most critical components of world-class compensation plans, from pay mix to performance metrics.

Presenters: Beth Carroll and Donya Rose

Recorded October 2011

Length: 56 mi

View the Webinar (registration with Xactly required): Essential Sales Compensation Design Tips

Compliments of Xactly

An in-depth discussion of common business problems and their sales compensation design solutions.

Learn firsthand about key design concepts and tips that will:

•   create plans that are strategically aligned and easily understood
• promote the right risk and reward balance
• establish fair yet attainable sales performance goals
• ensure collaboration between salespeople and sales management.

Presenter: Donya Rose

Recorded September 2011

Length: 1 hour 15 min

View the Webinar (registration with Synygy required): Avoiding Sales Compensation Pitfalls through Effective Plan Design

Compliments of Synygy

To be clear, this law would apply only to true commission plans, so sales incentives paid as a goal-based incentive would not be subject to it. For more on the difference between these two, see What is the difference between a commission and a bonus? (Note that a goal-based incentive is officially called a “bonus” by WorldatWork, the accepted keepers of the “Sales Compensation Body of Knowledge.”)

It is always a best practice to provide great plan documentation, and we generally recommend it take at least two forms, possibly three:

1. The rollout presentation. This is often a PowerPoint document which provides an overview of the plan design, explains what is new for the updated plans, and makes it clear what focus, behaviors and results are needed to earn well under the new plans.
2. The plan document. This explains the plan in further detail, ideally with good examples included. It is not general across all sales people, but specific to the person who receives it, and includes documentation of their own target compensation and sales goals. It also includes a section covering a range of contingencies (shared sales credit, crediting rules in case of transfers, provisions for leaves of absence and termination, management discretion clause, etc.). It needs to be technically correct in terms of the mechanics of the compensation plan, but also needs to be reviewed by legal counsel in all jurisdictions in which eligible employees live and work.
3. The earnings estimation calculator. This is either built in to  the compensation administration system as a feature, or provided as a stand-alone spreadsheet, often in Excel. It allows the incentive-eligible employee to enter sales goals and target compensation, and also possible sales results, and see the resulting compensation. (We love it when a comp plan is so simple that a calculator would be overkill, so occasionally we can recommend NOT providing a calculator. But for most businesses, a calculator can be a great tool to speed understanding of a new plan.)

These three communication tools are so vital to plan success that they are standard deliverables in all Cygnal Group Full Service plan design engagements.

A well-written sales compensation plan document clearly defines when the commission* is officially “earned,” and this may or may not be at the same time that it is paid. Many companies will pay some or all of the commission for a sale following the booking of the order, but reserve the right to reverse sales credit and payment if the order is cancelled, the product is returned, or the sales value is not collected from the customer within a certain timeframe.

Typical “triggers” for payment include:

• Booking/Order: The customer has agreed to purchase a specific product or service at a specific time for a specific price with specific terms, all documented in writing (e.g., booking)
• Shipment/Work completed: The product is shipped from the warehouse, or the service is delivered and accepted by the customer
• Revenue: Revenue for the sale is recognized in the company’s account in system (which may be triggered by shipment or service delivery as well)
• Cash: Some or all of the payment for the sale is received.

In the case where some or all of the commission is withheld until the company receives payment from the customer, some states (Illinois and Maryland) are beginning to adopt what is called “substantial procurement” doctrine, recognizing the right of sales people to be paid commission for booking a sale, even if their plan document states that payment is not earned or made until cash is received.

Despite this clearly defined “trigger” for earning and payment in the plan document, former employees in Illinois and Maryland can now argue otherwise. Their argument is rooted in the significant investment of time and effort on their part culminating in the successful close of the sale. They argue that a booked order “substantially procured” the commission because they (1) were able to convince the customer to agree to the sale, (2) processed the order, and (3) knew the company was prepared to ship or deliver the product or service to the customer.

In today’s economy, with companies struggling to maintain their cash flow, sales reps are not typically in the business of securing payment, leaving this task to their friends in accounts receivable.

Bottom line: In at least two states in the US, your sales people have the right to their commission payment if they obtained the order, regardless of the wording of your sales compensation plan document. Thus far, the practical implications have extended only to terminated employees. Watch for similar actions in other states, and for sales people making the claim that payments may not be withheld until cash is received if their job is done once the order is obtained.

For more details see the article on the SHRM web site by Joan Deschenaux (SHRM Senior Legal Editor), visible only to SHRM members.

*To date, this issue has arisen only with true commission plans (communicating compensation as a percent of the value of what is sold). However, the principles apply and the issue may shortly arise with other forms of sales compensation including quota-based incentives or bonus-type plans.

Date and Time

Webinar offered Wednesday, September 14, 2:00 – 3:00 pm US ET

Session Description

Incentive compensation is a powerful tool that sales organizations use to drive proper sales behaviors and produce desired results.

Yet, many companies don’t fully understand the fundamental principles behind an effective compensation plan design. The impact of these poorly-designed sales comp plans can be severe, including:  infighting over sales credits, low profit margins, misaligned plans that drive the wrong revenue, salespeople who are comfortable being under-quota, and other pitfalls.

For further insight and help, we invite you to join incentive compensation experts from The Cygnal Group and Synygy on Wednesday September 14th, for an online, in-depth discussion of common business problems and their sales compensation design solutions.

Compliments of Synygy and The Cygnal Group (no fee).

To Register: http://www.synygy.com/scmpitfalls/

Can’t attend due to a conflict?

Register anyway. Synygy will send an e-mail to those who have registered but are unable to attendf ollowing the event. The e-mail will include a link to a recording of the webinar so you can attend at your convenience.

This annual event, designed solely for addressing the needs of sales compensation professionals, is the most efficient and effective way to help improve your organization’s sales compensation strategy and be competitive.  It’s the annual gathering of the top thought-leaders in the profession, yet small enough for engaging in the serious types of one-on-one discussions that can help you uncover new ideas for dealing with your biggest sales compensation challenges.  The 24 sessions, networking receptions/breaks and even a pre-event online experience, all offer great opportunities for sharing a variety of ideas, solutions and new thinking.  This is the place to be for your sales comp answers.

As of this posting, conference is sold out. But if you are already registered and plan to attend, stop by our booth to visit with Brenda Rodriguez-Maldonado, Gary Lawrence, and Donya Rose. You may also want to sign up for Donya’s session, ou won’t want to miss The Cygnal Group’s Donya Rose speaking with Mike D’Adamo, President and CEO, CriterionBrock and former VP Sales at HD Supply on Thursday in their workshop: Focus to Grow: How a Simple Single Component Plan Can Focus Your Salespeople on Growth.

Looking forward to seeing you in Chicago!

Friday, August 5

7:30 a.m. – 8:00 a.m.   Networking,  8:00 a.m. – 9:00 a.m.   Program

Meeting Location:  Hughes Pittman & Gupton, LLP, 1500 Sunday Drive, Suite 300, Raleigh, NC

Topic:  Sales Compensation

Speaker:  Donya Rose, Managing Principal of The Cygnal Group

Donya will speak to the group about common business problems and sales compensation issues, as well as present current survey information on these topics. Bring your questions!

Donya is the managing principal of The Cygnal Group, located in Chapel Hill. She has over 25 years of experience in leading the design and implementation of systems and processes to ensure alignment of sales results with top business priorities. She has led projects in sales target setting, measurement and forecasting, technology enabled selling, and sales incentive compensation plan design. Today Donya focuses exclusively on sales compensation plans.

Donya’s recent clients for whom she has led sales compensation design efforts include Red Hat, Comcast Business Services, Elster Solutions and Tellabs. Donya also regularly assists smaller companies and startups with sales compensation plan design as they launch their sales teams and move through the early stages of growing their top line.

Please RSVP by Tuesday, August 2 to Natasha Richmond at rsvp@rtpcfos.com or call 919-232-5992. Attendance is limited to CFOs or senior financial professionals in similar positions.

Gary comes to us with over 25 years of experience in managing sales operations organizations and in evaluating, designing, and implementing sales and customer service incentive compensation programs. He holds an MBA from the Owen School of Management from Vanderbilt University, a Masters of Arts in Industrial Psychology from St. Mary’s University of San Antonio, and a Bachelors of Arts in Psychology from the Florida State University.

Bob Kelly, Chairman, The Sales Management Association

Brian Zimmerman, Managing Director, OpenView Venture Partners

Pat Elizondo, SVP, Xerox

Lance VandenBrook, VP of Worldwide Sales, Kiva Systems

About the Conference

Each Spring the MIT Sloan Sales Club hosts a one day Conference in Cambridge, MA with top executives and CEOs for keynotes, panels, and workshops on cutting edge sales topics. This completely student organized sales conference is still the only one of its kind to date. The day is packed with opportunities to learn and interact with the best of the best in Sales from across the country. This year’s theme will be “Selling in a New Normal.”

For more information, or to register: http://www.sloansalesconference.com/about.php

Discount code

Those referred by The Cygnal Group are eligible for a $75 discount using this discount code: MITSLSCLB_SpeakerFriend.

If you plan to come, drop Donya a note so she can find you at the event: donya.rose@cygnalgroup.com.