Seven Tips for Creating New Sales Compensation Plans

By Clinton Gott

When a current sales year starts to wind down, it becomes time to consider sales compensation plan needs for the next fiscal year. Companies should have appropriate plan designs ready-to-go and set for communication within the first two weeks of a new year. The assessment and design process can take anywhere from eight to twelve weeks, and we find the best outcomes result from following a better process. As you consider your new sales compensation plan needs, we recommend following these quick tips.

  1. Collect robust perspectives on the current plan’s performance. Interview leaders, take the pulse of the field, and understand what seems to be working or not with the current plans.
  2. Identify the business case for change. Start with an idea of what needs to be addressed and the outcomes you’d like to achieve. You may have new product or deployment strategies, a new sales leader looking to rev up performance, or simply a general sense that “we can do better”.
  3. Champion a cross-functional design team. Sales compensation is a discipline influenced by leaders in sales, finance, human resource, and sales operations. An effective design team brings together six to twelve representatives of these groups to consider plan performance, confirm new plan needs, and work through various design options.
  4. Engage executive decision makers early and often. Interview executives as part of the assessment phase, provide periodic updates, and build buy-in before the final Steering Committee plan review and approval session. We find C-level folks are focused on sales force performance and the sales compensation plans more now than ever, and you want to avoid any eleventh hour surprises.
  5. Perform targeted and appropriate assessment analysis. Even in the era of big data, we advise primarily doing targeted data analysis, potentially testing hypotheses being considered by the organization or exploring insights from the interview phase. In some cases, “boiling the ocean” in terms of data work can paralyze decision-making more than enable it.
  6. Do however pursue diligent cost modeling analysis. As plans are being finalized, enlist analytical horse power to perform scenario modeling on how the plans may perform considering below goal, at goal, and above goal outcomes. Check for impacts on macro-level costs as well as at the individual displacement level. And test the new plan designs using prior year results for a true apples-to-apples test.
  7. Leave at least a month from final plan approval to plan rollout. Depending on the size of your organization, you’ll need at least this much time to prepare plan documents, update terms and condition documents, and create plan communication presentations. The rollout communication should focus on the “what” and “why” behind the new compensation plan designs, as well as the “how” in terms of the design process followed.

We’ve left out one important – consider the world of best practices and how to apply them. Sources of best practices information can come from compensation conferences, industry roundtables, or various assessment and design articles. Just be aware that best practices are not “one size fits all”; emulating a general practice or even what your closest competitor may be doing could be exactly the wrong thing for your unique organization. In some cases, bringing in external support from the consulting community can not only provide best practice insights but also play an important process role. Sales compensation can be a highly political and emotional topic, and stakeholders rarely lack vocal opinions. Sometimes it takes a neutral party to help navigate competing perspectives. In any event, following a diligent design process and including the right inputs will help ensure a successful sales compensation design outcome.