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.

Consultant Marieke Pieterman also recently earned Global Remuneration Professional (GRP) certification. GRP certification reflects the expertise required to design, develop and evaluate remuneration plans around the world and is earned by passing a required battery of eight examinations. She also holds CSCP and Certified Compensation Professional (CCP®) designations from WorldatWork.

“These recent achievements point to our commitment to professionalism in all we do,” said firm Managing Principal Donya Rose.  “It’s not enough to be an independent experienced expert. We are also committed to active participation in the community of sales compensation practitioners sharing best practices and practical answers to the real challenge of compensating sales people in the most value-creating way. Certification is a reflection of our commitment to our clients and to our profession.”

About The Cygnal Group

The Cygnal Group is a consulting firm located in the Research Triangle of North Carolina and in Chicago, Illinois that focuses exclusively on sales compensation. Cygnal Group consultants assess sales compensation plans, train people to develop them, help clients design them, help to manage them and provide administrative services for them.  For more information, visit www.cygnalgroup.com or call 919-933-2290.

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Rose and Carroll, WorldatWork Certified Sales Compensation Professionals™, saw a need for a practical book of sample compensation plans to provide insight into the many plan design possibilities and typical designs by type of sales role and industry.  The sample plans will be based on their combined 30 years experience in sales compensation plan design and on contributions from today’s leading sales organizations. Cases featuring a “before” and “after” approach will be included to help readers understand why the plans were changed and how these changes improved the company’s situation.

“The appetite for a view of other companies’ plans is significant,” said Donya Rose. “And, as we know from our consulting practice, the best designs spring from a broad understanding of the array of possibilities in sales compensation plan design. Knowledge of what other companies are doing contributes to a designer’s ability to choose the best plan measures, mechanics, and features for the specific situation their business is facing in the coming year.”

Brenda comes to us with over 9 years of experience from Towers Watson. She holds an MBA from Northwestern University’s Kellogg School of Management as well as a BSIE from Purdue University.