Well-conceived sales compensation plan create strong sales contest incentives. If you expect your sales compensation plans to motivate sales performance, it takes planning and communication.
When sales compensation plans are commission-based, it takes even more clarity to produce sales performance results. And, while the language may be important, accuracy in sales reps bonus calculations is essential to success and reduced employee turnover.
Ideally, sales compensation plans wed sales performance and financial rewards. It does so by placing a segment of pay at risk until a sales objective is accomplished. Ideally, it directs the focus of individual and team sales performance to achieving individual, team, and organization goals.
The layered sales compensation plan
Compensation is a legal matter, a contract. There are compliance issues that argue against volatility in compensation payments. Meeting compliance issues require legalese, and this can confuse, obfuscate, and negate the incentive – encouraging employee turnover.
- The core salary is less than 50% of the sales reps’ usual total compensation. Success adjusts the paid compensation to the salesperson’s commission scale. Typically, base compensation is higher for beginning salespeople to let theme ease into the organization.
- Base compensation or commission draw disappears once the sales reps reach a benchmark. Then, total compensation is based on a mix of base plus commission on gross sales.
- Bonuses increase the total gross with awards for meeting goals: yearly, quarterly, and specific targets. These, too, are written into the employment contract.
- Incentives take the form of trophy vacations, time off, gift certificates, and the like. The law considers them compensation though not paid in cash. Sales contracts do not typically include specifics on incentives besides general eligibility and restrictions.
The central problem
Such detailed sales contracts can be counter-motivational. They suggest the sales compensation – in all its layers – is owed for time and effort. Any flexibility in the outcome may reflect the employee performance, but within personal parameters, the flexibility works. Therefore, any incentive must be clear, attractive, and achievable. Writing such sales incentive plans takes structure and communication.
It presents an additional employer problem in accounting and reporting the sales performance incentive, base compensation, and contracted commission. This often confounds small business employers and challenges the controllers at larger businesses.
The shadow accounting problem
Ironic to the incentive purpose, salespeople find themselves wasting competitive and performance time with shadow accounting. Individual salespeople create mental or formal spreadsheets to tally their progress and earnings.
Sales leaders and salespeople find themselves keeping independent sets of financial results. Shadow accounting, thus, invites self-perpetuating errors. So, the entire sales contest administration creates performance distractions, accounting problems, compensation payment errors, and distrust in outcomes.
The sales reps value
Solutions to problematic sales compensation plans lie in their origins. To minimize errors in bonus calculations, you need the necessary oversight software:
- Timely data: Performance must be reported as near to real time as possible. Data should contain clear bookings: calls, conversions, closed sales – whatever the metric.
- Simple reads: Sales reps do not need more info than is absolutely clear and necessary. If well administered and reported to them, the salespeople can open data fields for information they consider crucial.
- Easy access: Employees want easy and ready access. They want sales compensation plans accessible from their desktop, mobile platform, or home.
- Built in: Where CRM systems are used, employees want parallel performance reporting.
- Paid right: Responsibility for booking, reporting, and payment must be clear, secure, and accountable.
The employer values
Time rules successful sales contests. If sales reps spend time on their own mental math, it is time not spent on goals. It decreases sales performance. They waste additional time on arguing and settling commission issues at the end of the month.
Sales commissions and incentives rewarding sales are most effective when they fit corporate goals: launching a new product, clearing inventory, bundling products, and so on. Everyone benefits when sales and goals are aligned.
Juggling the bookings, awards, and goals across product lines and multiple users takes the skill, accuracy, and focus best accomplished through specialized software. It reports details and automates dispute resolution. Sales contest incentive plans risk employee turnover if you do not minimize errors in bonus calculations.
How to Set Up a Sales Compensation Plan by Elizabeth Wasserman
Five Ways to Limit Shadow Accounting and Increase Selling by Justin Lane
The ROI Value Proposition The NetCommissions Advantage White Paper Series
Understanding Sales Compensation Plans by Doug O’Grady
Sales Compensation Fundamentals by Jim Stoeckmann
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