Sales compensation appears straightforward: salespersons sell products, revenue is registered, and they are paid a portion of that revenue.
Different factors complicate this, such as measuring revenue, account types, quotas, and other aspects.
This lecture aims to provide a checklist and overview of key topics in sales compensation design, useful for those in finance, sales operations, sales management, or HR.
The Importance of Sales Compensation
Sales compensation is a proven, effective management tool when designed well.
Motivates sales reps, aligns with company strategy, and rewards outstanding performance.
Requires careful design to ensure effectiveness.
Key Topics in Sales Compensation Design
Strategic Alignment
Coverage and Segmentation
Charter Sales Jobs
Sales Compensation Principles
Methodology for Designing Programs
Design Formula
Communication
Data Sources and Automation Vendors
Drivers of Seller Performance
Not Just Pay: Leadership, accountability, personal accomplishment, and sales funnel progression are important motivators.
Sales Leadership: Providing direction, mission, and communication.
Accountability: Regular tracking and reports on sales performance beyond compensation.
Personal Accomplishment: Desire to succeed and be recognized.
Remuneration: Includes base salary, benefits, and various incentives (cash programs, contests, national recognition).
Sales Funnel Progression
Continuous process involving deal tracking and moving decisions forward.
Performance reporting systems and supervisory oversight are key elements.
Sales compensation is part of a larger performance ecosystem.
Strategic Alignment
Align compensation programs with company goals (revenue growth, new customers, product sales).
Compensation should reflect changing company objectives and sales strategies.
Importance of segments, talents, jobs, skills, processes, and performance measurements in alignment.
Prevalence of practice (what neighbors do) is less important due to different contexts.
Coverage and Segmentation
Organized around buyer populations (not product divisions).
Sales process involves access, persuasion, and fulfillment.
Examples of segments include centralized global accounts, large accounts, mid-market accounts, and territory accounts.
Different segments create different jobs, requiring unique compensation plans.
Charter Sales Jobs
Jobs need correct design (no damaged/corrupted jobs).
Common issues: sales jobs overloaded with service issues or blended jobs (hunter vs. farmer roles).
Clear definition and separation of job roles are critical to effective compensation.
Sales Compensation Principles
Analogous to building codes, applying globally.
Two types of sellers: Producers and Sales Representatives.
Producers: Get a percentage of everything they bring in (real estate agents, financial advisors).
Sales Representatives: Have target pay and upside earnings through structured plans.
Income and Performance
Producers: Income tied directly to sales/revenue; highly variable.
Sales Representatives: Target pay splits into base salary and at-risk incentive; upside limited by labor market norms.
Quotas and Performance Measures
Low performers' incentives redistribute to high performers.
Aiming for balanced quota distribution (55-65% exceeding quota).
Crediting rules ensure fair attribution of sales to multiple parties involved.
Designing Sales Compensation Programs
Annual review recommended to ensure alignment with strategic goals.
Assessment: Data gathering and alignment with company strategies.
Design: Cross-functional teams create plans based on analysis.
Implementation: Clear communication and training on new plans.
Ongoing Management: Monitoring, adjustments, and corrections as needed.
Communication Strategy
Effective communication is crucial for the success of sales compensation plans.
Leaders and managers should communicate the strategic alignment, changes, and earning opportunities clearly.
Use role-specific training and one-on-one discussions.
Provide tools like incentive calculators for transparency and understanding.
Automation and Data Sources
Invest in survey data to benchmark sales jobs and compensation levels.
Utilize automation tools (ICM/SPM) for efficient management and clear audit trails.
Conclusion
Sales compensation is a complex but essential part of sales management.
Proper design, alignment with strategy, and effective communication can maximize motivation and performance.
Regular updates and cross-functional involvement ensure relevancy and effectiveness.