Practical Sales Compensation – The “Sausage Making”

The “Sausage Making” stage requires creativity coupled with discipline. The Design Team needs to discuss and evaluate different options against various criteria, yet not get led off track by particularly vocal members or endless discussion meetings. Key tips to consider here include:

• Establishing Core Decision Guidelines / Philosophy – Investing some time on establishing core guidelines and a basic compensation philosophy at the start of the first Design Team meeting can pay dividends further along the line, and ensure the team stays true to the original objectives of the endeavor. From my observations, many teams like to visibly post these guidelines at each meeting, and many even do a quick review before every meeting and before any final decisions are made. The guidelines should include verbiage around topics such as:

-What business objectives you hope to achieve (e.g., more customers, higher margins, successful new product launch, increased customer penetration)
-What behaviors you want to drive in the sales force (e.g., teamwork/cross-selling, solution selling, focus on specific product mix, etc.)
-Whether you want to provide a clear differentiation in compensation for high versus low achievers and reward handsomely for overachievement
-How the team will agree on final decisions (e.g., vote, unanimous, etc.)
-Clarity, simplicity, and compatibility with existing systems capabilities (i.e., a solution that can be feasibly implemented)

TIP – Don’t go overboard! Keep the rules simple.

• Starting the “selling” process – As the team starts to coalesce around plan philosophy, structural fundamentals, initial performance measures, etc., it is time to consider other key stakeholders who should be informed of the progress and team ideas to date. There is nothing worse than investing a great deal of time and effort and then being shot down by a high level executive who disagrees with the team’s direction. Key roles tend to be the top level sales and/or marketing, the CFO or Controller, Sales Operations, and even the CEO in smaller to medium-sized organizations. Communications should be kept simple and swift but allow the stakeholder to understand enough to provide an initial approval. If they are “fed” the information in bite size chunks and understand the logic and flow of recommendations, they are more likely to buy into and support the final plans. This means multiple meetings to ensure there are adequate check-in points which will avoid the potential of them feeling “blindsided” in the end…

TIP – Identify stakeholders early in the process and schedule the meetings well in advance so time is not lost due to lack of availability. This also ensures the team works towards specific milestones / deadlines in the process.

• Creating a check list of decisions and make sure each one is covered – Right at the start of the process, it is a good idea to create a check list of all the various elements of sales compensation design and related implementation topics to ensure the team makes an informed decision about each. Per an earlier point about educating team members, for each topic there are leading practices out there that can serve as a reference point. Some of the more technical aspects of design and implementation that should be covered include:

-Eligibility and Role Clarity
-Goals of Role
-Appropriate Market Positioning – Total Compensation
-Salary vs. Incentive Mix and Upside
-Type of Reward Formula, e.g., Commission, Bonus, Management By Objective (MBO), or mixture
-Performance Measures – Selection and Weighting
-Crediting (Timing and Split vs. Multiple)
-Payout Cycles
-Incentive Structure, e.g., thresholds, upside, caps, etc.
-Individual vs. Team
-Draw (Recoverable and non-recoverable)
-Target Setting
-Administration – E.g., calculations, reports
-Administrative Guidelines – E.g., leave, mid-year new hire, windfalls, etc.
-Communication (Implementation)

Although it looks extensive, this is not an exhaustive list and there may be other issues unique to a particular organization, but it is a good start.

TIP – Check off each item as decisions are made. This will provide a sense of accomplishment for the team and indicate the progress made. Also, review the decisions from time to time to serve as a reminder and bring anyone who missed a session up to date.

• Ensuring entire Design Team is onboard with any decisions made – Once the team has worked its way through the entire checklist, and perhaps reviewed some outcomes from modeling as well, do a quick check to make sure everyone is on board and can support the decisions made. Someone talking behind the scenes about how they did not agree with this or that can be extremely undermining to the successful implementation of a new incentive plan. A verbal commitment in front of the group can help avoid those situations and can also provide a sanity check to ensure everyone understands what is being agreed to and the associated implications.

TIP – If a formal recommendation is being presented to company leadership have each team member personally sign the document and solicit their involvement if there is a presentation to be made.