Sales Compensation Plans, Steps 9 & 10: Payout Frequency & Admin Details
THE FINAL POST IN THIS SPECIAL SALES COMPENSATION BLOG SERIES!
Guest Article Written for EcSELL Institute by Bob Malandruccolo
The ninth step is choosing the Frequency of Payouts for each measure. I have built a simple three column diagram that breaks down elements that impact payout frequency.
The first column contains elements impacting payout frequency. The second column contains characteristics of biweekly, monthly and quarterly payouts. The last column contains characteristics of quarterly, semiannually and annual payouts. Notice that quarterly payouts overlap between these columns. The first element is structure. On average, commission plans payout more frequently than bonus plans. Next, when base salaries are relatively low, a pay mix less than 75/25 suggests a more frequent payout. The reason is about cash flow. If the payout frequency is not high enough, cash flow could constrict sales reps from paying their own bills. The next element is sales cycle. A common principle is to tie the reward to the achievement. For short sales cycles, frequent payouts are common. Longer sales cycles have longer payouts. The last element is the administration of the plan. If the plan is simple, higher frequency of payouts could be delivered. For complex plans such as multiple measures and individuals goals, lower payout frequency is common.
The tenth step is determining the Administrative Details included in the plan. Below is a list of the details that are included in sales compensation plan documents.
- Account Assignments and Re-assignments
- Account Receivables
- Channel Conflict
- Incentive Compensation Statements
- Governance for Issue Resolution
- Leave of Absence
- Other Incentive Program Eligibility (Contests, SPIFFs)
- Payout Frequency
- Payout Schedule
- Plan Administration
- Plan Effective Period and Plan Intent
- Promotions and Transfers
- Referral Fees
For example, how do I get paid when an account comes into or out of my territory? What happens if my biggest account goes out of business?
An example of a windfall/shortfall policy would be in the event of a windfall or a shortfall, the Company reserves the right to make modifications on incentive payments, taking into account the extent to which the sales rep's efforts influenced the sale.
The first step is defining the Sales Compensation Philosophy. It is developed by the Steering Committee and the philosophy guides the Design Team during the design process.
Step 2 is determining which Eligible Roles are included for sales compensation treatment.
Step 3 is selecting the Total Target Pay Level for each sales role. This represents the mid-point pay level for target performance.
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.
Step 5 is choosing the amount of Upside of incentive pay for high performers.
Step 6 is selecting Weights & Measures that are linked to incentives for the plan.
Step 7 is determining whether the plan should be based on Commission or Bonus or both.
Step 8 is defining the Structure Details of the plan including threshold and excellence levels and the payout curve.
Step 9 is choosing the Frequency of Payouts for each measure.
And finally, Step 10 is determining the Administrative Details included in the plan.
We hope you enjoyed learning about the 10 STEPS TO COMPENSATION PLAN DESIGN.
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Bob Malandruccolo is the founder and principal owner of Sales Force Effectiveness Consulting. With over twenty-five years of practical business, management and consulting experience in sales and marketing, Bob has worked with a broad range of clients from Fortune 100 corporations to small, closely-held firms with special emphasis on sales and marketing process implementation. He has worked closely with his clients through hundreds of successful engagements and implementations across multiple industries (manufacturing, engineering, distribution, software, healthcare insurance, medical products, healthcare, automotive, telecommunications, retail, information handling, media).