Sales Compensation Plans: 5 Steps to Ensure Strategic Alignment

Sales compensation can be tackled from a strategic standpoint to ensure it is in alignment with company goals and objectives. This is important when getting started in the process. In fact, to ensure that their sales compensation plan is strategically aligned, here are 5 steps employers can take.

Here are 5 steps to ensuring strategic alignment in your sales compensation plan:

1. Understand the overall sales goals and objectives. By first defining and understanding the goals and objectives of the sales team, you can ensure they are in alignment with the overall company strategic goals and objectives. Be sure to address both short- and long-term needs.
2. Identify the sales process, the job design, and the training required to support the sales goals. What sales model would be most successful (e.g. direct sales or selling through distributors; selling locally or nationally)? How long is the sales cycle? Does the company want to get new customers, or grow business with existing customers? Be sure to communicate the expectations to the sales team and ensure everyone understands how their role ties in to the organizational goals.
3. Develop the sales compensation program based on this knowledge. After you know the internal goals, continue the process by doing market research on best practices in your industry—then incorporate that information. “You have to internalize that and understand how you’re going to take that information and put it into the sales program internally.” Harry J. Schum told us in a recent BLR webinar. Putting all of this information together will let you define the type of sales compensation plan that will be best.

   You’ll be able to use this in conjunction with your organization’s specific needs to identify the appropriate mix of fixed vs. variable pay (commission, bonus, etc.), appropriate award percentages, metrics, and goals. Just be sure to retain flexibility. “The sales program needs to have some flexibility to change, to adapt to anything that’s going on during the sales cycle, but with the caveat: don’t change the program to the negative against the sales rep because you’ll have some human resource issues.” Schum advised.

4. Design the implementation and administration to ensure the organization can support the goals and the sales process in terms of timing, payroll, and financing. Be sure to address transitional issues and consider using a phased approach if necessary. Confirm in advance that the organization has the ability to track goal progress and accurately monitor the items tied to variable pay. Also be sure that those who will be administering the program fully understand it.
5. Monitor sales effectiveness, get feedback, and administer re-training as needed. Be sure to provide ongoing performance feedback to the team. Periodically assess the plan to confirm it is meeting the objectives; make adjustments if needed, but be careful not to change the whole system too often, as this will certainly be de-motivational.

For more information on creating a strategically-aligned sales compensation plan, order the webinar recording of “Sales Compensation: How to Create, Manage, and Grow a Competitive Strategy That Works.” To register for a future webinar, visit http://store.blr.com/events/webinars.

Harry J. Schum is a Senior Consultant with Compensation Resources Inc. His areas of expertise include executive compensation, variable pay, incentive strategies and human resource planning, and program implementation.