The Greatest Sales Compensation Plan Ever*

* Just kidding, there is no such thing.

“Don't pay the ferryman,
Until he gets you to the other side.”

from Don’t Pay the Ferryman by Chris de Burgh

The many, often conflicting goals a sales compensation plan is meant to achieve, in addition to the huge variety of products, services, and businesses, make it impossible to have one plan that is “the greatest.” This description by HubSpot sums it up nicely:

“The purpose of a sales compensation plan is to encourage positive behaviors across your team, set expectations and standards for compensation for all salespeople, and drive results to achieve overall team and organizational goals.

The structure of a sales compensation plan varies by business and is typically based on team organization, resources, and goals … their budget, business structure, employee needs, and team targets.

There should be a compensation plan for every member of the sales team based on their role, experience, length of the sales cycle, and the type of deals they engage in.”

There are other signs that indicate that the perfect plan is an illusion. Just consider these headlines:

“HP, HPE to pay $25M to settle lawsuit over faulty sales pay”

Jan 16, 2019, Silicon Valley Business Journal:

“The line of IBM salespeople suing the company over their pay just got longer”

Aug 21, 2018, The News & Observer

“Oracle sues its own star sales rep after she wins back $200k in pay fight”

Jan 26, 2017, The Register

“57% Of Sales Reps Missed Their Quotas Last Year”

Sep 2, 2018, Forbes

Having written and executed sales compensation plans for many years, like most every sales leader, I am opinionated as to what works and what does not. Allow me to share some of the ground rules that I think have to apply to all sales compensation plans:

1. KISS

2. Transparent to the salesperson - if it takes Accounting a week following the end of a month to calculate revenue, use contract value instead for your compensation plan.

3. Instant Gratification - relative to sales compensation that means monthly or quarterly, not once a year; and for the total deal at once, not sequenced randomly over time.

4. Open-ended, rewarding every dollar sold - unless you want your salespeople to stop selling.

5. Reward against goals, a quota, and/or milestone - with a sliding scale.

6. Windfall Opportunity clause - to protect the business and ensure fairness.

7. Achievable – there is really no reason ever to write a plan that sets a salesperson up for failure.

8. Legally sound – you do not want to end up in a headline like those above.

and

9. KISS – yes, keep it simple!

Ensuring that the compensation plan delivers the desired results starts with having the right people draft the plan, e.g. an experienced sales leader, not an accountant or HR professional. I acknowledge that there are many sources including some I am quoting that suggest HR or a team including Finance and HR to draft the plan. I would argue that if the success of the plan is determined by how well salespeople are directed, it requires someone who understands how salespeople think.

There is a long list of items to consider and include (or intentionally exclude) when drafting a compensation plan. This article will not attempt to list them all or describe when and how to apply them. However, whatever you consider, have it driven by the thought of how to achieve the business’ desired results through sales.

And yet another key aspect is that it is not a one-time exercise, rather an ongoing process:

1. Once it is in place the sales leader continuously monitors the results of his team: If the business needs new logos over up-selling, service sales over product sales, or recurring over one-time revenue, the sales leader has options to adjust if the intended results are not achieved, e.g.:

- Changing the compensation plan, ideally at the end of a compensation period.

- Adding a sales competition, which has the added benefit of gamification.

2. Having an experienced person draft the plan, also ensures that the disruptions caused by changing the plan are minimized. Make no mistake, you will have to make adjustments over time, as the business changes. Disruptions, however, are caused by changing plan fundamentals. A great sales leader is able to predict the outcome of the plan he/she puts in place.

__________________

HubSpot – The Ultimate Guide to Sales Compensation

SHRM – Designing Compensation Systems for Sales Professionals

Salesforce – 5 Steps to an Effective Sales Compensation Plan You Need to Know

Photo by Anne Gosewehr

(Link to video)