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Comments or Suggestions?
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By David Cichelli, The Alexander Group, Inc.
www.compensatingthesalesforce.com
According to results of The Alexander Group's "2003 Sales Compensation Trends Survey" over 90% of the 600 participants made revisions to their 2003 sales compensation plans. According to David Cichelli who conducted the study and recently authored "Compensating The Sales Force" (McGraw Hill), "90% pretty much holds true from year to year. We will be seeing the same number of plan changes for 2004," he predicts.
When compared to other pay plans, sales compensation seems to have the most "noise." Frequent complaints, annual changes, and sometimes, mid-year revisions, are common practices. Cichelli added: "Don't be alarmed by these conditions, they are endemic to sales compensation plans." "You see," commented Cichelli, "sales compensation plans reflect the performance expectations of sales leadership. They are not appeasement programs. As business objectives shift, so must the sales compensation plans change."
Cichelli offers these design tips:
- Expect to have a unique sales compensation plan for each unique sales job.
- Keep the number of performance measures to 3 or fewer per plan.
- Pay for persuasion once—do not provide annuity or proximity pay to sales personnel.
- Set performance expectations so that 65% of sales personnel can achieve and exceed goal while 35% don't.
- Set the pay mix for the job—the portion of pay in base salary versus incentive opportunity—as a function of the degree of sales influence.
- Provide upside leverage for outstanding performance equal to the incentive target times 3.
- Pay for sales results, not effort.
- Do not use the sales compensation for compliance objectives.
- Work to provide fair and equitable quota allocation.
- Control, monitor and audit quota changes, account changes and crediting rules to preclude abuse of the pay program policies.
According to Cichelli, sales organizations often wait to the last minute to review their sales compensation plans for the coming year. Unfortunately, effective sales compensation design cannot be rushed. It requires engaged participation of sales, marketing and finance. HR needs to provide external pay data. Sales operations needs to prepare ROI outcomes on the current plans. Marketing needs to clearly articulate the expected contributions from the sales department. Finance needs to provide information on the cost of selling. And, finally, the IT department must be at-the-ready to provide suitable transaction calculation and reporting support.
David Cichelli has taught thousands of professional students how to design effective sales compensation plans. His new book, "Compensating The Sales Force" provides practical advice on how to design and implement winning sales compensation plans. And, his parting advice to all sales compensation designers: "No Tweaking." To learn how to do it right, get Cichelli’s book. Visit www.compensatingthesalesforce.com to learn more.
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