Target Total Compensation (TTC) is the amount of pay that a role (not a person) is expected to earn at 100% of expected performance. This number is absolutely essential to developing sound compensation plans. Without it you will not know who is doing better than expected and who is doing worse. Compared to what? You also will not know if your plan is working as you intend it to…is it paying more or less than it should? Compared to what? Using Target Total Compensation provides an internal benchmark that you can use in comparison to market data, such as that provided by the TIA salary survey. You can certainly compare what your population has actually made to the market data, but how do you know if the historical data you are looking at represents an extremely good year where everyone was above target, or an extremely bad year? As a consultant, it’s especially challenging to compare old-plan payouts to new-plan payouts when there is no defined TTC for the role. The new plan might pay out at target significantly less than the old plan actually did for a given incumbent, but there is no way to know if the old plan paid out more because of above goal performance or because management simply made a mistake or created a “special deal.” This can perpetuate overpayment, as the new plan may be engineered to provide nearly the same, inflated level of pay, at simply average performance in the new year.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.