How effective is your Sales Compensation Plan?

By: Paul R. Dorf, APD, CRI

Upper Saddle River, NJ – September 6, 2012 – The following is a timely and short quiz to determine if you need to rethink your sales compensation plan.

Why timely?

New pay programs, especially those covering your sales force, work best when they coincide with a new calendar year.  When new plans are implemented off cycle, the problems tend to be magnified, so now is the time to start the process to be ready for a January 2013 target date.  Companies have the next four months to review their current plans, develop new ones and conduct appropriate modeling, then install them, including providing the necessary communications to impacted employees, as well as to the staff who will administer them.

How effective?

Question 1 – Is management happy with the sales results?  If not, which of the performance targets are not being accomplished?  Were the goals realistic and attainable?

Question 2 – Does your sales performance mirror the typical 80/20 rule?  That means that 80% of your business is being generated by 20% of your sales force.

Question 3 – Do your sales personnel primarily sell within their “comfort zone”?  That means they sell to those customers they know, rather than reaching out and expanding their customer base; they seem to only sell products and services that they are very familiar with, rather than those that the company wants to sell; and they always want to sell below the quoted price, at the lowest margin.

Question 4 – Are the sales personnel making too much for what they produce?  What do your sales personnel actually cost you, and how much do they need to sell to cover those costs?

Question 5 – Is your company losing too many sales people, and particularly the best and most productive?  Turnover is inevitable, but you don’t want to lose the best and most successful.

Question 6 – Has setting realistic annual sales goals become much too painful?


What should you do?

Answer 1Clarify the company’s expectations for maximizing its overall sales effort.  Should we emphasize getting new customers or maintaining and broadening sales to the existing customer base?

Answer 2 Determine what works and what doesn’t work in your sales compensation program.  Most companies have tried many approaches to sales compensation; however, most do not spend enough time trying to analyzing what really works.  If the 80/20 rule applies to your sales force, it is critical to properly recognize and reward those individuals, since you can’t afford to lose them.  You should also consider modifying your pay plans to better motivate desired performance in other sales personnel.

Answer 3 – Identify what influences impact sales success, other than money.  Compensation is only one component impacting a company’s ability to attract capable sales staff, retain the most productive ones, and provide sufficient motivation and focus.

Answer 4 – Model and test new sales compensation programs.  It is critical to understand how the new plan will impact overall compensation for the sales force; a pilot study can assess how the new plan will work in a real-time setting.

Answer 5Implement new plan and measure plan success.  Successful implementation is critical; this includes how well the new plan is communicated to participants, management, and the administrative staff, plus providing guidelines for monitoring activities to determine the plan’s effectiveness.

Answer 6.  If you are not sure your sales compensation plan is working effectively, now may be the time to seek assistance.  Use your resources (both internal and external) to run a sanity check on your existing sales compensation plan, and seek to identify strengths and weaknesses of your current plan.  Then, consider using what works for you and redefine weak areas; understanding that plans often fail due to complexity, their difficulty to administer, and lack of focus.  Now may be the time to step back and redefine a more effective process.