When we assess a client’s sales compensation plans, we use the following criteria. How do your plans stack up?
Eligibility
- Eligible employees have direct influence over sales outcomes as their primary accountability
Pay Structure
Total Target Cash aligned with market
Pay Mix and Upside aligned with role prominence, generally with 20% – 50% of total target compensation in the incentive (25% – 100% of base)
Motivational value of plans
Plan measures and mechanics are easy to explain and calculate
Target incentive is earned by at least half of the salespeople
Top earners earning 2-3 times target
Recognition programs publicize and celebrate success
Incentive Mechanics
Measurement period and pay frequency aligned with sales cycle length
Sales credit and payment triggers aligned with core sales responsibility
Payout curves tuned to focus meaningful compensation on improving the performance of the middle 80%
Incentive form (commission/bonus) correct for business maturity and type of selling
All incentive components funded out of target
All incentive components uncapped except for MBO or teamed components
Plan Measures
Measures aligned with top business priorities & based primarily on objective financial outcomes
Measures under the direct control of salesperson
Three or fewer measures focus effort
All measures weighted at 20% or more at target
Risk mitigation
Core plan measures tracked in company systems and based on financial results
Windfall protection in place
Plan governance processes are robust and well understood
Plan documents are accurate and clear, and include Plan Provisions (Ts/Cs)
Plans administered via well documented cross-trained system with few manual/discretionary processes
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.