Three tips for improving sales compensation plans

Sales compensation management and commissions plans should not be stagnant or set in stone on a yearly basis.

Companies are always changing, whether it be through the introduction of new products, expansion into new markets, the assignment of new leaders or any other number of variables. Likewise, sales compensation plans should be fluid and dynamic. If a company launches a new product, commissions should be raised to push that item. If a business is expanding into new markets, bonuses should be offered to incentivize sales in those regions.

The point is, a sales compensation plan always needs to complement the business environment in which it is being enacted. Just as companies are always changing and evolving, so too should bonus and commissions initiatives. This is especially the case given the volatility of the market – companies' goals and objectives are always shifting, whether they are reacting to losses by cutting expenses or aggressively expanding on the back of newfound successes. Commissions plans need to evolve at the same pace.

Evaluating the lay of the land

One of the most crucial parts of developing a sensible sales performance management program is being able to evaluate the current performance of a company and aligning payouts with business goals.

Sales managers should work with other department heads to clarify strategic objectives and broader corporate goals. This will ensure that sales departments are working cohesively with other parts of organizations. Then, sales managers can look at existing plans and determine the best changes to bring them in line with corporate objectives.

"At regular intervals, all variable pay plans should be reviewed, assessed and monitored for effectiveness," Varicent adds. "A more focused and strategic assessment usually should be conducted when company business objectives are reset for a new year, or sometimes, after a new organizational change."

Looking forward

Once a sales manager has determined where the department is, he or she can then begin to look forward and assess which steps need to be taken to bring sales in line with objectives.

This process starts by defining the objectives of sales plans. When sales managers overlook this process, the result tends to be compensation plans that lead to poor departmental performance or employees who feel unhappy with their jobs.

Once these objectives have been defined, lucrative and encouraging compensation plans can be formed.

"Typically, human resources and sales operations collaborate to establish compensation levels," Varicent explains. "After roles have been defined, compensation levels can be determined based on a company's compensation philosophy, associated market pay benchmarking and internal equity."

Iron out the kinks

Aligning business objectives and establishing commission tiers are broad tasks, essentially helping sales managers to establish an outline. Once this template has been made, it's up to companies to fill in the details and iron out the kinks on their way to execution. These are the details that will help ensure equality among sales teams and prevent the creation of abusive plans that don't serve anyone.

"Companies can add an additional layer of focus onto plan measures by developing the formula. For example, a compensation plan may have three core measures but the company may want to avoid over achievement if not all components are achieved," Varicent suggests. "A link or threshold could be integrated into the plan to put such controls into place."

Establishing a well-thought out sales plan is crucial for all involved. It will help companies achieve business goals, while also motivating sales agents to push their performance to the limits.