In our work as sales compensation consultants, we often are asked about sales compensation best practices. We prefer to call them “better practices” as what is “best” in one environment and for addressing one company’s particular needs may not always be “best” in another. Designing an effective sales compensation program is part art and part science, part following specific better practices while being able to understand how and when to apply them.
In this blog, we have assembled our list of these tried and true “better practices”, leveraging our experiences from over seventy combined years in the consulting industry. Many are rooted in common sense, but you may (or may not) be surprised how many sales compensation designs veer wildly off track; staying grounded on what works and why they work serves as the foundation for creating effective designs.
We typically test for the alignment to these practices as one lens by which to assess a sales compensation plan, while being aware once again that some practices work better than others in specific industries, in particular company cultures, and for addressing particular challenges or opportunities. We offer the following practices as some of the most relevant ones to observe:
- Offer eligibility to be on sales compensation only to roles with a reasonable degree of impact on sales results.
- Offer pay levels that align to your talent strategy within your labor market realities, e.g., superior talent rarely comes at median market pay levels.
- Align the base/incentive mix to the sales influence of the role – and keep consistent for all people in that role.
- Pair downside risk and upside opportunity to drive optimal results.
- Offer upside levels for top performers at one to three times target incentive, depending on industry and role.
- Measure and pay for individual results – pay only for results under the seller’s control or influence.
- Target no more than three metrics with at least 15% weighting on each.
- Use volume-based metrics primarily and only use objectives (MBO/KSI) secondarily.
- Design goal-based plans as they drive results better than do pure commission plans.
- When setting goals, avoid over-allocation or limit to no more than 5%.
- Set realistic performance targets, with an ambition that around 60% of reps exceed goal.
- Ensure measurement periods are not shorter than the sales cycle time.
- Offer payouts as close to the sales event as is reasonable.
- Ensure crediting encourages teamwork and collaboration, which often means using double-crediting rather than split crediting.
- Create manager plans that directly align to the results of the direct reports.
This list of fifteen better practices is a great starting point and hits on the main categories of design, but there are dozens more that can and should also be considered depending on your needs or issues. We are happy to share that more exhaustive list, upon request. We can also share the “why” behind each practice and consider how we can provide support in applying them in your environment to create a better sales incentive program!
If you have any questions or comments on better practices, please do not hesitate to reach out to anyone on the BSC team!