Creating a Successful Compensation Plan
How easy is it?
A discussion about developing sales compensation plans, that work.
Consistent with everything in life, careful thought, preparation and a clear objective are essential for success. Designing a successful and effective compensation plan is no different. Good compensation plans must be:
- realistic
- simple to administer and understood by all
- motivating
- an integral part of the over-all sales strategy and sales management process
Compensation plans are as individual as each business. There is no “one-size-fits-all”. There are, however, a set of standard fundamentals within each business from which all compensation plans should be developed. The components of the plan must be aligned and consistent with these basic fundamentals. When initiating a compensation plan, business leaders must start with a clear understanding of:
- their business model and philosophy
- their business objectives
- the right people with the right skills in the right place and what is expected of them
- their goals, expectations, measurements and the accountability system(s)
- the performance management program(s)
- their culture (do sales managers help develop skills and talents of reps; is it a team environment, etc)
In addition to the fundamentals listed above, several key variables enter into the formulation of compensation plans:
- over-all sales strategy
- sales management and its role
- the maturity of the business
- the profile of sales force
- types of sales channels
- the marketplace
- short term needs and goals versus long term
- organizational structure insuring people are assigned properly with clear, well communicated objectives and are incented and paid accordingly
- pricing and margin
- client incentive programs
- what results are covered by salary / draw versus what results are considered exceeding expectations
- total benefits (auto, expenses, cell phone, healthcare, retirement, etc)
Once a compensation plan is in place, it is not an advisable strategy to constantly change, and/or tinker with, compensation plans; but at times, change is necessary. Plans do not have to change in totality, but rather adjustments can be made such as:
- number of components in the plan
- assigned weight on each component
- individual goals versus team goals
- focus of the commission (gross profit, margin, new accounts, retained accounts, retained dollars, add-on sales, cross selling, internal referrals, etc)
- timing of when commissions are paid
- other rewards (trips, awards, etc).
Development of an effective compensation plan is a process that takes into consideration the company’s sales objectives and strategies and aligns the plans components with the key business fundamentals. The effectiveness and success require thought and planning.
Summary
This information presents a sampling of Rahal Consulting’s philosophy and approach toward sales and business development. With extensive and successful business experience accrued over numerous engagements across multiple industries, we are poised to help business leaders prepare for the future.
Rahal Consulting seeks to initiate a dialogue with business leaders and to objectively assist in the development and implementation of growth strategies and tactics.
To initiate a more in-depth discussion and for additional information, please contact:
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