Is Your Sales Compensation Plan Working For You or Against You?

Remember when your parents would say, “You’ll understand the value of this when you grow up?” They were trying to convince us to do what they were saying in hopes that someday it would make sense and we would appreciate their wisdom. When I walk into some businesses the sales compensation plan has a similarity to this parent-child lesson approach. The message interpreted by the sales team from the owner is, “Go make lots of sales and you’ll understand how I’m paying you after I pay you.” If your sales people have uncertainty as to how and why they’re compensated, there’s a motivational opportunity missed and even worse, the plan can work against you.

If a sales person is not certain they are being paid correctly, they might wonder if they are being paid unfairly or incorrectly. If this is the case, they can lose some confidence in the company.  A lack of confidence will not help a sales person sell more. On the flip side, when a sales person understands the details of their pay plan and what is expected of them, they are now empowered to work their pay plan to it’s maximum advantage.

In one of our past blogs, “You’re Paying Your Sales People How Much?”, we covered how to design a pay plan that is profitable to the company and to your sales people. Once you have designed a profitable sales compensation plan, the next step is to describe it to your sales people so they can find the motivation to “Go make more sales.”

Sales Compensation Plan Description

A sales person’s compensation plan tends to be more complicated than most other employee pay plans. Use the outline below to create your own Compensation Description that will have you, the accounting department, and your salespeople clear and confident about what is earned and paid out.

As you work through the outline, spell out the details that will clearly describe your sales compensation plan.

1. Expected income at 100% goal attainment

   • Spell out how much a sales person should expect to earn annually if they attain their company set individual sales goal (100% attainment).

2. Individual Sales Revenue Goal

   • Document what the annual Individual Sales Revenue Goal is for the sales person.

3. Compensation Structure – spell out

   • Salary
     1. Amount
     2. When they can expect payments
   • Commission
     1. Percentage
     2. If tiered explain how that works
     3. When they can expect payments and what period they will be paid for
   • Bonus Potential
     1. What qualifies them to earn a bonus
     2. Be specific on how they earn the bonus.
     3. When they can expect payout
   • Other benefits and perks
     1. List these on a separate page.
     2. Explain when and how reimbursements of any kind are requested and paid out.

4. Charge back policy

   • If you have a charge back policy for returns or unfulfilled orders, spell out how it effects their earnings and where it will be reported.

5. What is required of an order to qualify for commission or bonus.

   • What paper work is required?
   • Are signatures or PO’s required?
   • Is delivery required?
   • Is payment required?

6. Other details. This could include any or all the following details.

   • Are multiple locations handled differently?
   • If new and existing accounts are paid differently, describe what qualifies as a new account.
   • Describe differences in payout for any segments of products or services.
   • How things will be tracked and recorded.
   • Definitions: anything that can be ambiguous that you would like to clarify and define.

7. Examples

   • Provide an example(s) of a commission and bonus payout. If you use tiers for commission you might show a few examples.
   • Provide a sample of the report your salespeople will receive with their bonus and commission payout.

Ask for feedback

Once you have your plan described, run it by your sales team. Give them the opportunity to review it and ask questions, so you can provide clarification. If needed, add the clarification to your description and roll it out.

When your sales people understand their sales compensation plan it will encourage their behavior toward the results you want. Your salespeople will be working their pay plan; and that’s a good thing for your business.