The Coaching Effect Blog

10 Steps of Sales Compensation Planning

Posted by Jaime Davis-Thomas

September 3, 2010

10 Steps of Sales Compensation Planning

Bob M.Guest Article by Bob Malandruccolo

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.  

In my opinion, what is the #1 overlooked step in sales compensation design? My experience shows that Step #1 is often overlooked. Some Steering Committees cannot decide on the philosophy and ask the Design Team to figure it out. Another issue is starting at steps 6 and 7. A recent client asked me to sit in on a Design Team session. The Design Team had already completed Role Design, so they were ready for sales compensation design. My role during the Design Team session was to observe until they would ask me for assistance. Well, the Design Team started with measures and thresholds and payout curves. The members had different opinions, but they could not agree on anything. After 90 minutes, they finally asked me to break the ties. So I asked the Design Team to articulate the sales compensation philosophy. There was silence. Finally, someone said that there is no philosophy. I knew the executive sponsor of the project was the CEO, so I asked if we could get the CEO to come into the room and describe his philosophy. Fortunately, he was available, and he was able to articulate it.


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).

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Topics: sales producer, Best Practice, sales planning, compensation recognition rewards, sales analytics & performance tracking, Sales Management, Resources for sales managers, sales performance

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