A well-structured sales compensation plans forms one metric of your sales performance management ability. If a sales contest is part of that sales compensation plan, you must know how to do it right.
The promise of recognition for outstanding work will drive sales performance. It can be: a certificate or plaque acknowledging mastery of a task; some outstanding performance that sets performers apart; or awards that further the sales person’s individual purpose and plan. But, your sales performance management achievement lies in how you structure the sales compensation plan.
Any sales compensation plans must comply with the Fair Labor Standards Act (FLSA) rules on outside sales, minimum wage, commission, and overtime. Your human resources professional must sign off on any sales compensation plan.
Sales Compensation Plans elements
Money is not the only thing that motivates sales people. Rewards come in many forms, but they all have a perceived monetary value.
- Base Pay: A plan’s base pay compensates sales employee for monthly tasks like filing reports, answering calls, and satisfying customer queries. The plan should favor new hires, providing some starting draw to relieve them of the distractions of family obligations and bill payments. It might be 40% to 60% of the budgeted total compensation, declining over the year in anticipation of the earned revenues.
- Commission: Commissions routinely drive competition among experienced sales people, and that motivation deepens during sales contests. While plans eventually put all sales people on a 100% commission basis, other sectors have specific product and business cycles that do not permit commission-only compensation. In most cases, commissions represent 40% to 80% of the total compensation.
- Bonus: Bonuses make annual lump sum cash payments for some cumulative excellence that you might align with team and mentoring performance. The task lies among other goals and promotes the performance of usually mid-performers. The amount should drive performance but not increase the total compensation above 80% of the total compensation planned.
- Sales Contest: A sales contest rewards performance in short-term increments. The rewards are tangible prizes: merchandise, gift cards, or travel.
With performance tiers, your sales performance management scheme rewards top performers, motivate teams, and still have flexibility to stay within budget. Whatever the tiers of the sales compensation plan – your sales performance management depends on your ability to design, install, and monitor the plans and performance they drive.
Sales Performance Management
Sales performance management control is lost and planning wasted without continuity. Part of the planning requires you to be alert to its progress while forecasting the performance outcomes and rolling out future performance in a readjusted plan into the next calendar year.
- Simple: Plans, regardless of their complexity, must appear simple. Sales people have to understand the plan, and one test of its workability is the employee’s ability to communicate it to another. So, it makes sense to communicate the layers of the plan as distinct paths.
- Individual: Sales compensation plans have private and public aspects. Base bay determined by tenure will vary among employees, so there is only controversy and conflict in sharing that info. Likewise, commission and bonuses may vary in recognition of previous performance or sales leadership, so publicizing those variances invites trouble. Sales contest incentives, on the other hand, are public motives.
- Livable: While ambition and human needs may drive performance, there is no value in keeping compensation so low that the sales people cannot meet their basic needs. The minimum performance level must approximate the community’s living wage. Otherwise, you can align your structure to current industry habits and norms.
- Special: Your sales compensation plans must target personal and corporate goals. There may be competitor markets to penetrate or a market niche to dominate. The business may want to manage the revenue volatility with a mid-year or fourth-quarter record performance. Or, the sales and marketing budget may want to see existing customers buying new products.
One Final Caution
Once sales people see bonuses and sales contest incentives as regular income, the incentive disappears. Once it is income, they own the compensation, and any performance-based variance will seem punitive. So, get it right from the start!
Sales compensation plans related links:
Three Tips to Design a Sales Compensation Plan by Suzanne Paling, Entrepreneur
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