California HR

Creating a Sales Compensation Philosophy

“When we’re talking about sales compensation objectives, we define them as the five ‘rights.’ We want the sales people to sell the right product to the right customer at the right price at the right profit and at the right time. Unfortunately, many companies don’t get this right.”

Sales compensation philosophies should be in alignment with company objectives while still motivating the sales team—all without going over budget. This can be a challenge, but there are some tips to help employers get it right.

The 5 ‘Rights’ of Sales Compensation

“When we’re talking about sales compensation objectives, we define them as the five ‘rights.’ We want the sales people to sell the right product to the right customer at the right price at the right profit and at the right time. Unfortunately, many companies don’t get this right,” Diana D. Neelman outlined in a recent BLR webinar (BLR is CER’s parent company).

“Because they don’t do their due diligence and take the time to design the plans accordingly and correctly, many companies put together sales compensation plans in haste, and ultimately these plans could be very de-motivational to the employees—at the risk of turnover and termination.”

After doing the due diligence and determining the objectives of the sales compensation, employers should create a formal sales compensation philosophy. The sales compensation philosophy is a document that contains various statements that identify an organization’s philosophy, specific to the sales team.

To do this right, get the right people in on the planning process, including executives, sales managers, HR, and possibly even the sales people to give insight to what the process is like. “If we don’t have buy-in at the critical levels of the organization with the right people, the chances that the plan will succeed are diminished,” Neelman warned.

Creating a Sales Compensation Plan: Some Tips for Employers

Taking a holistic view of sales compensation is important. This means we need to look at all aspects of the sales compensation philosophy, right down to the implementation and future administration, not just the reward structure. This includes the initial plan design, setting the goals and rewards system, the implementation process, the communication plan, and the administration details. Each of these components is important.


Sales compensation plan makeover: How to fix what’s broken. Webinar tomorrow—learn more!


“If we feel we have a solid rewards structure in place, but we can’t track and measure performance, we’re not going to see the relationship of performance and pay,” Neelman noted. Focusing on only the rewards structure fails to take the big picture into account. Look at all aspects of design and administration. Know how the plan will operate on an ongoing basis. Lots of preparation is required up front to ensure the plan is successful.

To get this right, be sure to engage all stakeholders up front, and take your time with the process to get it right and create an effective plan the first time.

Coming tomorrow: Are you “cost of sales” or “cost of labor”?

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