Editor's Note: This guest post from Bob Malandruccolo has been updated for accuracy and comprehensiveness on June 18, 2020.
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.
Thanks for following along with our 10 compensation plan steps. Comment below on which step was the most helpful to you.
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 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. Find more about this topic in this blog.
Step 6 is selecting Weights & Measures that are linked to incentives for the plan. More on this topic found 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 in this blog.
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.
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). Article Source: http://EzineArticles.com/expert=Bob_Malandruccolo