Sales Compensation Planning, Step 2: Select Eligible Roles
Guest Article by Bob Malandruccolo
This is the second article in the series HOW TO BUILD AN EFFECTIVE SALES COMPENSATION PLANS written for the EcSELL Institute by Bob Malandruccolo. Enjoy STEP TWO!
The second step in designing sales compensation plans is determining which Eligible Roles are included for sales compensation treatment. This may seem 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.
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.
There is still time to register for our monthly sales management webinar titled "Best Practices In Sales Compensation" September 13 at 10 PST / 12 CST / 1 EST. Free to first time attendees!
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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).