Editor's Note: This guest post from Bob Malandruccolo has been updated for accuracy and comprehensiveness on June 8, 2020.
The second step in designing sales compensation plans is determining which eligible roles are included for sales compensation treatment. This may seem like an easy step, but there are other influences that could cloud the picture. There are at least three functional groups that could be included in a plan.
The first group would be sales roles. Outside sales reps, account managers, national account managers, key account managers, major account managers, business development managers, inside sales reps, sales management, etc. If you have a plan, these roles are definitely included.
Another function is sales support. There are marketing specialists, product specialists, pre-sale specialists, post-sales specialists, planners, pricing specialists, proposal specialists, etc. Depending on industry practices and company culture, these roles are oftentimes included in plans.
The third group is Functional Support. Marketing, customer service, operations and legal may be eligible for the plan. Oftentimes, these roles are not included in the plan; however, operations and legal roles are sometimes included in the sales compensation plan where long sales cycles with complicated proposals and contracts exist. Think about a fifteen year contract for power plants, outsourcing programs, trains, planes, etc.
How to determine eligibility is based on specific company criteria. Companies need to determine their own type of criteria in determining whether roles are in or out for receiving sales compensation treatment.
These are some common criteria for determining eligibility:
- Does the role have a sales quota?
- What is the extent of customer interaction?
- Are the performance measures based on sales results?
- What are the roles responsible for? Do they acquire new accounts? Do they retain or expand existing customers?
- What are the competitive practices for sales incentives at your direct competitors?
- Are you able to attract and retain your specific sales talent?
- What are your culture and your philosophy concerning roles eligible for sales compensation treatment?
What are the most important criteria for eligibility?
My experience is that if you have a quota and you have a high level of customer interaction, you (the manager) should be included in the sales compensation plan. If not, other criteria would need to come into play.
HERE ARE THE 10 SALES COMPENSATION PLAN STEPS:
Step 1 is defining the Sales Compensation Philosophy or Strategy. It is developed by the Steering Committee and the philosophy guides the Design Team during the design process. Read about this step here.
Step 2 is determining which Eligible Roles are included for sales compensation treatment. Learn more about this step here.
Step 3 is selecting the Total Target Pay Level for each sales role. This represents the mid-point pay level for target performance. Read more about this step here.
Step 4 is determining what the Pay Mix should be for each sales role. Pay mix is the ratio between base salary and incentive pay at target performance. You read about this step in this blog.
Step 5 is choosing the amount of Upside of incentive pay for high performers. Read more about this step here.
Step 6 is selecting Weights & Measures that are linked to incentives for the plan. Learn more about this step here.
Step 7 is determining whether the plan should be based on Commission or Bonus or both. Read more about this step here.
Step 8 is defining the Structure Details of the plan including threshold and excellence levels and the payout curve. Learn more about this step here.
Step 9 is choosing the Frequency of Payouts for each measure. Read more about this step here.
And finally, Step 10 is determining the Administrative Details included in the plan. Learn more about this step here.