How can a company know in advance if their plan is designed properly? For that we can take a look at the 4 desired outcomes of a well designed compensation plan.

Attract & Retain Top Talent – Are you Market Competitive?

Every CEO or VP Sales will tell you they want to hire the top sales people in their industry. That should be a given. But from my experience, companies give little thought to how their compensation plan can attract top sales people. Ask yourself these questions about your company’s sales compensation plan:

• Is my company’s base salary competitive?

• Is my company’s commission structure in line with that of the competition?

• Is there a cap on commission at a competitor?

• Do they get paid monthly, quarterly or annually at competitors?

• Do sales people at my competitors get paid based on revenue or margin?

If you don’t know the answers to these questions, you should. The easiest way to find out is to interview sales people at other companies. If you are offering base salaries %25 lower than all of your competitors, you are going to have a difficult time attracting top sales people. Use competitive information as a starting point and make adjustments that fit your business based on the next three points.

Align employee interests with the company’s business objectives

Sales people want to feel their contributions to growing revenue are rewarded appropriately. A common argument I hear from business owners is they feel their sales people make too much money as a percentage of the revenue they bring in. The best designed compensation plans align both the interest of both parties. Here are 3 keys to aligning those interests.

• As a rule of thumb, total compensation should not exceed 20% of gross profit*

• Compensate more for higher margin products/services sold

• Payout commissions once the company has collected the money from the client

By putting these elements in place, you are ensuring that you are not overpaying the sales person, they are focused on selling the highest margin products and services and you protect cash flow by paying them once your business gets paid.

Ensure Compensation is Results Driven

At the end of the day, people who choose to be in sales are driven by success. They are in sales because of the potential money they can make. Within your compensation plan you should clearly define your expectations for performance and the associated commissions, bonuses or other incentives (trips, car allowances etc.). Depending on the length of your sales cycle, you may want to set weekly, monthly or quarterly targets and manage people to those targets. Your compensation structure should motivate the right behaviours. If you want new business, pay your sales people for bring in new clients. If you want to retain clients, pay your sales people on client retention. You’ll know if your plan is well designed if your sales people are exhibiting the desired behaviours.

Developing a sales compensation structure that addresses all of these issues is a challenging process. However, once your plan is in place it will help drive your sales objectives and support your recruitment goal of attracting the best possible talent. 

*This is a general rule of thumb and specific circumstances may make this number higher or lower.