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7 Keys to Designing a Sales Comp Plan That Delivers

By Rebecca Regan

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Published: 30Jul2009
Word count: 727
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As we approach the end of the first half of 2009, we've seen the first glimmer of hope for a rebounding economy. As the economy begins to recover, sales people who produce real financial results will continue to be highly coveted by manufacturers and service providers in every conceivable industry. It's time to reassess your sales compensation plan, particularly in consideration of the downward shift in actual pay rates over the past year to verify your company's competitive pay position.

As competition for top sales people intensifies, companies share the following concerns about their ability to attract and retain a high quality sales staff:

* Ability to attract and retain top tier sales people is always the #1 issue

* Know what your competition is paying for different levels of sales people and sales management

* Drive sales staff behaviors to achieve organizational goals for promoting products and driving revenue

In creating a sales compensation program that consists of base plus incentive pay, the following tips are critical to use in developing a sound sales incentive program.

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. Ask your execs these questions to develop your company's compensation philosophy:

* Do you want to pay employees at market, below market or above market rates in base pay only, or use both base/incentive payouts for comparable jobs?

* Are you creating a "pay for performance" environment where your company will reward higher performance ratings with significant dollars?

* Discuss and describe desired competencies for different jobs/job groups. What does success look like once it's been achieved? How can you model that behavior to build it into your compensation philosophy? How will those competencies be measured?

2). Market price your sales jobs. Use updated job descriptions to perform a market pricing study based upon job content. Select current year published salary surveys in your industry, SIC code and/or geographic location to source data from 4-6 salary surveys. Get survey recommendations in advance from your VP of Sales to ensure his buy-in for the survey's results. Use updated salary survey data to compare against your actual pay rates and update your company's sales incentive plan.

3). Define your desired behavioral and financial goals for your sales incentive plan. Work with your VP of Sales to define desired behaviors, financial outcomes and customer service qualifiers for each job in your sales division. Create custom plans for each employee with individualized goals and weightings for target and above target payouts.

4). Work closely with your CFO to cost out the proposed plan. Your incentive plan should be self funded through increased sales and revenues if properly designed. Have your CFO map out different potential scenarios to cost out the plan during its first year in existence.

5). Write plan documents that include a summary plan overview including:

* Your company's compensation philosophy

* The incentive plan's goals (revenue, quality, new customer acquisition, old customer retention, etc.)

* Definitions and exceptions

* Payments

* Eligibility

* Company's right to amend plan

Then write individual plans to accompany the overview which map out the plan structure, each employee's individual goals, and potential payouts. Have each employee sign off on both summary plan documents and their individualized plan agreements.

6). Pilot the proposed incentive plan to key sales staff before rolling it out to the entire department. Select one or two of your highest level performers and ask them to critique the plan. Modify the incentive plan when appropriate based upon their feedback. This strategy also builds support and excitement for the new plan with other staff when it's time to implement.

7). Review and modify the plan quarterly. Like companies, incentive plans are dynamic. Sales incentive plans need to be updated and changed often depending on shifting factors including environmental considerations, addition of new products, customer retention strategies, new business lines, etc.

Designing and implementing sales incentive plans is a strategic and tactical exercise that can generate significant additional revenue for your company. As our economy begins to emerge from this serious recession, savvy comp people will have updated their sales incentive plans to verify their company's ability to attract and retain high quality sales people. Use these tips to update or build your company's sales incentive plan now so you're ahead of the curve as the economy rebounds!

Copyright 2009 Regan HR, Inc.

Becky Regan is the founder and President of Regan HR, Inc., a human resources consulting firm specializing in compensation consulting for California employers and purveyor of online HR products. A former Corporate Human Resources Director (10,000+ employees) with more than 25 years of HR work experience in many industries, her team works with private, public and non-profit clients.

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