8 Keys to Designing a Sales Comp Plan That Delivers

By Becky Regan

As competition for top sales people intensifies, companies have expressed the following concerns that are motivating them to review and/or update their commission plans:

  • Able to attract & retain top tier sales people
  • Know what the competition is paying for different levels of sales people & sales management
  • Drive sales staff behaviors to achieve organizational goals for promoting products and generating revenue
  • Understand comparable structures of competitive pay packages for sales people so they can customize a plan that fits their organization and sales team

In creating a sales compensation program that consists of base pay plus incentive pay = total compensation, following are key steps that need to be done in sequence to design a sound sales comp plan that delivers a good ROI:

  1. Define your company’s compensation philosophy. Create a statement for your company that reflects your senior management/CEO’s philosophy about how the company wants to reward and retain its employees. Questions to ask include:
    • Do you want to pay at, below, or above market rates for comparable jobs?
    • Are you creating a “pay for performance” environment where your company will intentionally put more pay at risk to generate higher levels of performance?
    • What kind of work/life programs will your company create in order to attract and retain the level of talent necessary to support the company?
  2. Market price your sales jobs. Using updated job descriptions; perform a market pricing study based upon job content. Select published salary surveys in your industry; SIC code or geographic location to source data from 4-6 surveys. You’ll want to get survey recommendations from your Sales VP, plus his “buy-in” on your own recommendations for salary surveys based upon your research. Then evaluate base pay plus incentive pay findings from salary surveys to determine comparable pay packages for sales people in your industry.
  3. Define desired objectives of sales incentive plan. Work with your VP of Sales to define major categories for measuring sales performance, then have your VP establish and weight goals for each sales person.
  4. Design a plan that incorporates your company’s philosophy on thresholds, how you want to pay in relation to the market, frequency & administration of payouts, and whether the incentive plan will be capped.
  5. Working with your CFO, cost out the proposed plan. It should be self-funding if it’s been designed properly. The more your company makes in revenue, the more the sales person will make in commissions.
  6. Write plan documents that include a summary plan overview including your company’s compensation philosophy, goals, definitions, exceptions, payments, plan eligibility, management’s right to amend, etc. Then write individualized plan documents demonstrating the plan structure, each employee’s assigned goals, and base pay plus incentive payout potential. Have the plan documents reviewed and approved by an attorney, as they become legal contracts for payment.
  7. Pilot the proposed plan before rolling it out to sales staff. Select a couple of your top performing sales people and give them a draft of the plan for their review & comment.
  8. Rollout the plan to staff. Review it every quarter (from both financial and behavioral perspectives) and tweak it as needed to modify behavior or adjust financial goals. Designing and implementing sales commission plans is both a strategic and tactical exercise that when done properly can generate significant additional revenue for your company. By creating an incentive plan that aligns your sales organization to collectively work toward achieving shared and/or individual goals that support company’s financial objectives, you’ve directly influenced your company’s balance sheet in a very positive way.

Copyright 2008, Regan HR, Inc.

Becky Regan, M.A., CCP began her own consulting practice in 1995, Regan HR, Inc. to provide human resources consulting services to businesses in California. Her work as a consultant includes the full spectrum of HR technical expertise with an expertise in compensation studies. In addition to consulting with clients, in 2008 Becky expanded her practice to include online marketing of her custom HR products and established coaching programs for developing HR professionals. For more HR tips and to receive her FRE*E special report, visit http://www.ReganHR.com