Is it Time for a Sales Compensation Program Tune Up?

This week’s blog is from Michael F. Maciekowich, national director with Naviga Recruiting & Executive Search partner Astron Solutions LLC, a consulting firm dedicated to the delivery of human resource consulting services and supportive technology.

For many organizations, cash compensation has been the primary tool for motivating sales teams and sending messages of success.  This becomes especially important in today’s depressed economy. More than ever organizations need to take advantage of the lull in the labor market to take a close look at the effectiveness of their sales compensation programs.

Of particular interest is calculating if the programs are successful at generating a positive return on investment (ROI) over administration costs, particularly in a down economy.

Many of today’s sales compensation programs may not be in line with the new economic reality. Thus, they may not be an effective motivation for sales staff.  A key indication of this is when sales staff focuses more on “high dollar” and “low ROI” services or products.

That is why, in the ever-changing economic climate, it is recommended that sales compensation programs be reviewed at least annually to catch any shift in program effectiveness early.

Step 1: Audit of Current Practices

Before you can make a change, you need to know where you are currently.  You can audit your organization’s current sales compensation programs by focusing on the following five activities:

  • Analyze your plan’s primary design factors, including the overall cost of the sales compensation plan and the role and effectiveness of the plan in business strategy execution.
  • Determine the success of the current plan by answering key questions, such as whether or not the organization achieved a better return on compensation dollars spent as compared to a year ago.
  • Review current market trends impacting your organization’s sales force, including industry and geographic competitors’ activities.
  • Conduct an internal survey and focus group discussion of the understanding of the current program by your sales force.

Step 2: Design Elements

Now that you know where you are, you can map out where you’re headed and how you’re going to get there.  With the audit complete, the next step is to focus on the key design elements of the revised program including eligibility, targeted total compensation, mix and leverage of salary to incentive payment, performance measures, and incentive formula.

Step 3: Implementation and Communication

You can have the greatest sales program in the world, but without communication the plan will be worthless.  That is why the next step is to communicate and implement the revised program.

There are two key aspects to be included in this phase.  First you’ll need to provide a written plan description to each covered employee so that they know what to expect from the new plan in the coming year.

Second, ensure everyone is on a level playing field by providing staff training on the new system.  You should be able to convey key information to covered staff, including a discussion of the plan’s new features, within two hours.

Additionally, you should provide individual calculations for each employee of the new plan’s impact on personal compensation based on past performance.  A comparison with past compensation will bring the new plan to life, and help each employee to understand how to be successful in a dynamic sales environment.