Savvy compensation plan administrators know it is essential to keep an eye on the big picture and constantly evaluate how well an incentive compensation plan is performing against corporate goals. Currently, many companies are at the midyear point, which is an especially important time to examine plan performance.
For starters, in the first six months of the new calendar year, you’ve generated enough data to indicate how a plan is working, and how it might be falling short. While hopefully, this analysis yields the need to just make incremental adjustments to your current compensation plans, sometimes changes in business strategy require the addition of an entirely new role.
For example, a new channel manager or inside sales team. No matter the position, setting up a compensation plan correctly from the start is essential to achieving the performance you are seeking over the long haul. On this front, our very own Donya Rose, CSCP recently penned a piece for World at Work’s Sales Comp Focus newsletter examining “9 Steps to Create a Shiny New Comp Plan for Your New Sales Role.”
The piece offers a step-by-step guide to consider in your compensation planning, from defining the characteristics of the role to determining payout rates. Below we’ve provided a sneak peak to get you on the right path. The full list of steps can be found here.
Steps to Create a New Comp Plan for Your New Sales Role
Document the Key Characteristics of the Role
Sales compensation is role-based compensation, so it will be important to understand what the person in the role is expected to do, what skills they need to have, and how much experience. These role characteristics will help you match the role correctly to market data and determine the appropriate total compensation level.
Establish Target Cash Compensation (TCC)
In addition to external compensation survey data, also consider the pay levels of similar roles in your business, the pay levels of the person’s managers and subordinates if applicable, and the pay level required to attract outside talent to the role.
Determine Pay Mix
The primary determinant of pay mix is the degree to which the sales people in the role cause the results on which they are measured, independent of the brand, the breadth of the product offering, the pricing, the product features, etc.
The more direct influence the salesperson has on the sales results, the more risk (and upside) is appropriate in their plan.For a new business sales person with a great deal of personal influence over sales results, the pay mix may be 50/50 (50 percent of TCC in the base at midpoint, and 50 percent in the incentive at target).
For an inbound inside role, with responsibility to respond well when the phone rings, but little control over the calls that come through, the pay mix may be more like 80/20.
For most sales roles, the range of appropriate pay mix is from 50/50 to 80/20. Pay mixes more incentive-rich than 50/50 may result in aggressive and short-term sales behaviors and limited ability to manage the sales person other than through the compensation plan. Pay mixes more base-rich than 80/20 rarely provide enough risk and upside to effectively focus behavior and drive results.