How to Create a Sales Compensation Plan that Works

o one in sales would argue that creating a compensation plan that is both fair and motivating is an extremely complex task. One way to develop and implement the most effective means of compensation is to bring leadership together from several areas of the company to get their input. After all, the performance of the sales team has ripple effects across the entire organization. According to Salesforce, a representative from the following departments should be present to offer input into the compensation development process:

  • Director, senior representative, or vice president of sales
  • Consulting, strategic services, or other relevant outside experts
  • Finance department
  • Human resources

The person organizing the planning session should also consider inviting or at least informing a senior manager from the marketing and legal departments. Consulting a local compensation analyst who specializes in the sales industry will help to ensure that the company pays its sales representatives as much or more than the competition.

Factors for the Compensation Team to Consider

With a planning team made up of professionals from diverse areas of the company, the meeting facilitator should expect some strong differences of opinion. However, he or she needs to stay in control of time and not allow one person to speak too long or over all the others. Here are some things for the team to carefully consider when working on a new compensation plan for sales associates:

  • Provide greater financial compensation for the most desired actions. Every company has sales actions that matter to them more than others. The best way to encourage salespeople to meet the more important goals is to provider greater incentive to do so. For example, selling to a new client could earn a representative higher commission than selling to an existing client.
  • When making significant changes to the way an employee earns money, it’s important to introduce the changes in a straightforward way and make them simple for sales representative to follow. If the new compensation plan includes too many variables, salespeople may become frustrated and just continue doing things the way they always have. This defeats the purpose of a new compensation system entirely.
  • Most companies with sales teams use one of four methods of compensation or a combination of the four. The team responsible for overhauling the current method of compensation needs to determine if the company will set a profit-based system, focus on revenue and quota, used a balanced approach that incorporates these two approaches, or whether to provide bonuses to teams or individuals.

Keep the Lines of Communication Open and Continue to Monitor the New Plan

People are creatures of habit and don’t always accept change even when it ultimately benefits them. This is just as true of the sales profession as any other. Some sales representatives may feel suspicious that more work is expected of them for less pay or resentful that others who aren’t responsible for meeting sales goals every day made the rules for them. Companies can avoid unnecessary resistance by being transparent about the compensation changes from the start. This includes answering all questions and giving concrete example of why the new plan is in everyone’s best interest.