Can you explain your company’s sales comp plan to a 2nd grader?

We’re into the 3rd quarter of the year and your sales kickoff meeting is approaching.  Now is probably the time of the year your organization begins to think about the sales compensation plan and what modifications will be made for the coming year.  Something you might think about:  Can you explain the sales compensation plan to a 2nd grader?  I’m not talking about the prodigy that has composed 2 symphonies and is in her 3rd year of medical school, just the typical 2nd grader.  Is this hyperbole to make a point?  Perhaps, but there is typically far too much complexity in comp plans.  What are some signs that your compensation plan is too complex?

Sure, a sales compensation plan should reinforce behaviors consistent with strategic direction and operational philosophy but it should also be easily documented.  In most cases, one page should be more than adequate to describe the compensation plan payment rules including a sample calculation.  If the plan document is longer than this, ask yourself why.   Should it really be any more difficult to understand than this?  Your sales force has more important things to worry about. 

Every component that makes up the sales compensation plan should have a clear reason for being there.   What exactly is the reason for the rolling twelve month component?  Why do we pay an extra 2 percent for selling product group A compared to product group B?  If your average sales rep cannot explain the motivations behind each component than there might be an issue. 

How many hours per pay period are your compensation administrators spending handling questions or disputes about pay.  The cost of their time is compounded by the cost in lost sales of the person on the other end of the phone.  How much time spent in disputes is too much depends on many factors and is difficult to quantify.   However, if a particular component of the compensation plan accounts for an inordinate amount of dispute time, maybe it’s time to give it the 2nd grader test.

-Michael Stus