Insights

Sales force compensation: quick assessment and expert tips

Overview
Published on: October 26, 2022
Subjects:  Total compensation, Performance and bonus

In the digital era, with online sales upending traditional business models, the sales force remains the main driver of growth for many organizations. It is the engine that drives them forward, and no matter how good their products or services are, without sales, there is no revenue, and, without revenue, there can be no business.

It follows then that, for these organizations, sales force performance is a key to success, and this performance is largely driven by a solid compensation plan. However, a poorly -designed plan can discourage a sales team or lead to undesirable behaviours that may hinder growth. So you need to be mindful of the warning lights that may appear on your dashboard along the way and not hesitate to adjust your plan if necessary.

Here are three questions that will help you quickly assess the situation and ensure your plan is aligned with your needs.

1. What indicators can you use to assess your compensation plan's effectiveness? 

Competitiveness

First, consider how competitive your compensation plan is. Is the total compensation (base pay + bonus and/or commission) for each position in line with the market? Does the relative weight of the fixed and variable elements make sense for your organization? Does the frequency of incentive compensation payments (not necessarily annual) work well with your employee profile? You might have to make some adjustments based on the life cycle of your product or service.

Alignment with business objectives
When it comes to your sales force or any other employee category, your compensation plan must be aligned with your business objectives if you want to achieve the anticipated results. Look at your performance indicators for the next year. Whether your focus is on profitability, acquiring new clients or boosting cross-selling, make sure to include a way to measure that specific objective in your plan.

Pay differences
Pay differences should be fair and reasonable, while also leaving enough room to reward leading salespeople for their exceptional performance. Take a look at the compensation paid to each member of your sales team. If payments are not differentiated enough, this could be a sign to redesign the plan.

Level of understanding
It is important to consider the communication and comprehension aspects of the plan. Do the members of your sales team know how their work affects the company’s ability to achieve the objectives set out in the plan and, by extension, their total compensation?

Adverse effects
Is your plan designed to encourage good behaviour in the sales force? If you notice undesired behaviours, such as unhealthy competition between salespeople or a tendency to hold off certain sales until the beginning of the next fiscal year, there may be an imbalance in the way the plan is weighted that will need to be rectified.

2. Have you chosen the right plan? 

There are two main models of sales force incentive compensation plans, which are based on various factors:

  • Commission-based compensation plans are based on sales volume and/or margins. They are generally easier to set up and suitable for shorter sales cycles in which the salesperson can exert a great deal of influence on the customer’s buying decision, including by adjusting the sales price.
  • Bonus plans, on the other hand, are based on more sophisticated calculation formulas using quantitative and qualitative performance indicators. They are often more complex to administer and communicate, and are better suited to longer sales cycles and higher-value-added goods and services that require more teamwork to influence the customer’s buying decision.

Keep in mind that there is no “ideal” or one-size-fits-all compensation plan. An organization should take various factors into account when choosing the best plan for its salespeople, including its industry, size, sales cycle length and whether the plan reflects its business objectives and values. The terms of the plan can differ based on each salesperson’s profile; for example, a “hunter” may get a higher commission rate for new customer sales, while a “farmer” will earn more from existing customer sales.

3. How do you transition smoothly when adjustments are needed? 

  • Get all stakeholders within your organization involved: Start with your finance and human resources teams and don’t forget your managers and sales leaders, who play a key role in presenting the change in a positive light.
  • Give affected employees plenty of notice: When it comes to compensation, proactive and transparent communication is a sure-fire recipe for success. Ideally, any changes should be announced four to six months before they come into effect. This ensures that your employees understand the intended purpose, calculation method and impact of the coming changes on their compensation, which will help keep them engaged. 
  • If possible, implement the changes at the beginning of the next fiscal year: A change in compensation during the year is likely to cause more frustration if it reduces employees’ expected pay.
  • Assess how the changes will affect each salesperson’s compensation beforehand: If they turn out to be very negative for some employees, you might want to consider a longer transition period (one year, for example), during which employees could receive the higher amount between the old and new plans.
  • Make sure the sales force compensation plan is aligned with your organization’s operations: The incentive compensation plan for your salespeople should encourage behaviours that match the abilities of your production and sales support teams and that align with the interests of the sales leaders.

Key takeaways

A well-thought-out sales force compensation plan encourages the behaviours you want to see while providing fair and reasonable rates of compensation. It should be based on the right criteria, well calibrated, easy to administer and understand, aligned with your business strategy and—most importantly—tailored to your organization’s unique environment.

Let’s keep the conversation going...

Are you counting on a driven and committed sales force to ensure your growth? Our experts can help you make informed decisions to set up an effective compensation plan that is tailored to your business objectives. Contact us to discuss your specific needs.

Auteurs

  • Dominic Girard, Senior Consultant 
  • Guillaume Paradis, M.Sc., Consultant

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