The importance of sales compensation planning

One of the leading challenges of managing a successful sales department is compensation planning. Businesses can't just pull numbers out of a hat and expect their salespeople to sell the products and services and hit quotas. Compensation is an important consideration that every company must carefully think over – a well-planned system will motivate agents, but a poorly conceived one will result in a mess.

World class sales incentive initiatives and plans are useful for a number of purposes within companies. They aren't always exclusively designed to motivate salespeople; they can be used to benefit companies in other ways.

In terms of recruitment, lucrative sales plans make companies more desirable to work for. By providing agents with health bonuses, base commissions and other perks, businesses are able to set themselves apart from competitors. With the economy coming back from the recession, many workers are looking for greater compensation. Offering better payouts is one way to get top performers interested in a company.

On the same note, effective sales compensation will keep top performers working at your company, rather than heading for greener pastures. There are few things worse than losing the cream of the crop salespeople, particularly for something as trivial as deploying an ineffective sales plan. So many companies invest resources into ensuring their salespeople are at the top of their game, and an undesirable compensation plan is foolish reason to lose these individuals.

While paying salespeople well is an important part of the sales plan, it's crucial that they are only rewarded for favorable performances. Incentive plans should reward agents for hitting exceptional numbers while under compensating for sub-par performances. Paying money to ineffective representatives is something no company should do.

Companies also need to avoid encouraging salespeople to sell products and services that don't align with current business objectives. Sales is a function of an organization, and it should always act in a way that benefits the firm as a whole. Managers should look to align sales force activities with business goals as a whole, and compensation plans are one way to do this.

If businesses want to come up with better commissions and payout schemes, they may want to consider investing in incentive compensation management (ICM) software that can help them achieve those goals.