Business & Finance Careers & Employment

Human Resources - Create a Winning Sales Compensation Plan

It is 4th quarter and it is budget season.
As sales leaders, we all know what is coming.
You know, more quota; less compensation, and probably even less people.
So how do you avoid the trap that leaders fall into year after year? You know, the major miss on sales compensation that creates havoc on your organization and can negatively impact overall sales effectiveness.
Here are the top 3 things to avoid to create a great sales compensation plan and 2009 on the right foot! 1.
Keep them Guessing.
Do you know that studies show on average 60% of sales professionals do not understand their own compensation plan? Well it is true.
The reason for this is that management makes the compensation so complicated that the average sales person just does not have time to really understand the plan.
Why are the plans complicated? There are too many components and too many gates.
A decent plan should have no more than 3 components.
If you have more than this, you are bound to confuse the team and create unnecessary anxiety.
Use the KISS theory - Keep It Simple Sister! 2.
Can't Execute.
Some of the best compensation ideas on paper are not great in practice.
Too many gates, accelerators and conditions can make the most sophisticated system crash.
You will ruin the best compensation plan if you do not administer correctly or more importantly timely.
So even if you plan to bring in the manual Calvary you must make sure you really can implement the plan before you roll out the plan.
Test the components with last year's data and run a full cycle end to end.
If you can not get through the calculations, chargebacks and taxes in a reasonable period then don't do it.
This does not mean you have to throw away all your financial controls.
Create a road-map to work towards the ideal plan over time.
Remember Rome was not built in a day! 3.
Lack of Buy-In.
It is the classic rivalry.
Like University of Texas vs.
Texas A&M or University of Florida vs.
FSU; there are long standing competitions that transcend decade or industry.
Finance vs.
Sales is one of those rivalries.
Finance leaders almost always believe that sales people are compensated too richly and Sales leaders almost always think they are not compensated enough.
So what is the solution? No, it is not to get rid of all the Finance people.
The answer is to create an approval process so everyone has buy-in upfront.
Key partners would include Finance, Sales, Marketing, HR and Legal.
Create a committee to review the pros and cons of the old plan vs.
the new plan.
Discuss how the plan would be administered.
What are the risks to the company vs.
to the employees? And how this change will impact the organization overall.
Asking each key partner to sign-off on the plan is another great way to solicit formal agreement before moving forward.
Once everyone signs off and agrees, it is YOUR plan as a management team.
One that each functional leader will support, champion and defend when asked.
Compensation plans are a critical component to recruiting and retaining top talent.
If you make an effort to build straight forward plans that everyone buys into upfront, you will save yourself time and energy adjusting the plans later in the year.

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