Sales’ Compensation in the Spotlight

Friday, August, 10 2012

True or false, every organization wants more sales. Answer, it depends on which products are being sold, in what quantities, to which customers, under what terms, and lastly, what is the sales’ compensation structure for the sales. Sales of un-profitable products or those with low margins, sales in the wrong quantities, sales to customers with poor collection or credit histories under unreasonable terms, and sales compensated for under an excessively generous commission scheme, may not be desirable. What should an organization consider when designing or redesigning a sales’ compensation system?

1. How does the sales’ compensation system fit into the overall goals of the organization, the product line, and business strategy?

• Consider that a sales’ compensation system which promotes expansion to new customers and territories too soon or which cannot be supported with product production, may not be in alignment with the current strategy of the organization.

2. What is the financial return on sales for each product line? 

• The expected financial performance of a sales’ compensation plan should be modeled across all possible configurations to identify any possible situations where it would produce a negative or marginal return.

3. Does the sales’ compensation system build and support the desired culture and behavior the organization wants from its sales force?

• A “go slow” organization may not want a sales’ compensation plan which attracts, motivates, and drives a high performing “go getter”, “no-holds-barred” sales force.

4. Is it simple to explain and easy to administer?

• A sales’ compensation system that requires more than a single written page to explain is too complicated and may be very complicated to administer and will incite mistrust from the sales team.

5. Does the compensation paid correlate with performance or does it overly reward low performers while punishing top performers?

• Most organizations anecdotally already know who the top and bottom performers are. This knowledge should correlate very well with existing or proposed sales’ compensation plan payouts.

6. Have sales goals been set to fairly reflect the market and sales’ staff capabilities as well as the organization’s ability to produce and deliver product?

• Target goals set too low or set too high can have unexpected sales results. The inability of the organization to produce and deliver product on time and in the quantity and quality required can cost the organization sales and sales staff.

7. Is a sales compensation system the most optimum means to direct the motivation of the organization’s sales force?

• Depending on the organization, its products and where it and its products are within the business and product cycles, commissioned sales’ compensation may or may not be the best choice to reward sales performance.

Financial performance, market position, and reputation often hinge on the ability of an organization’s sales force to deliver product to current customers while incubating potential clients. The catalyst to driving and motivation sales behavior is often the design of the organization’s sales compensation system.