After the incentive plans for sales representatives are completed and modeled, the next step in a plan design project is to develop plans for the front-line Sales Managers. Companies generally take one of three approaches based on their pay philosophy.
The first approach identifies Sales Managers as members of the company’s management team and should be on the same management incentive plan as other managers in their pay grade. This usually means that some portion (typically 70%) is based on one or two financial measures at the region/area/sales channel level with the remainder based personal objectives (which are also used to determine merit pay increases). At times one of the measures are as high as the total company level; however, these are less effective since measurement at that level is so far from the line of sight of the managers that there is the perception that there is little, if any, alignment to everyday sales management activity.
The second approach sees Sales Managers as team leaders and therefore they should have their incentive pay directly linked to the performance of their team of sales representatives. In this approach, one or two of the key components of the sales representatives’ plan become the measures for the managers. Focus is on outcomes (e.g., new revenue, revenue growth, profit) not on sales activities (e.g., sales calls, closed leads). Activity measurement is best for the annual performance appraisal for the managers’ merit pay increase. The performance measurement for this approach is typically quarterly when the sales representatives are on monthly plans or aligned when both are on quarterly plans (with in some cases of an annual component in some cases for one of the measures).
The third approach is a mixture of the two, for example, 70% weight on team performance and 30% on financials. This sends the message that the primary responsibility is meeting the sales goals that support the Company’s financial metrics. The company stresses the importance of the sales representatives meeting or exceeding goals while also recognizing Sales Managers’ status are members of the management team. In this case as well, other performance measures are used for merit pay increases.
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.