How can you design a sales compensation plan that is transparent and easy to understand?

When you design a compensation plan, start with considering what outcomes you want to recognize and reward. Ensure you align your company goals with each plan. For example, if you are putting an emphasis on net new business, be sure that the compensation plans for all sales positions reward new business. Make sure that the compensation for securing new business is higher or better than repeat business. Remember, when it comes to compensation, it's not what you say, it's how you pay. Your people will review the compensation plan to see how best to leverage it and spend their time where you are paying them the most.

A real compensation experience from the 80s. I moved to Corpus Christi to work for a soft drink company & quickly promoted to a sales manager. I was given a paid salary + commission. First payday,, the president had payroll send me to his office to give "the person who made more money than he did" his check. Little by little, my salary was lowered till I was just on commission. Then that was lowered. I still performed There were 16 sales managers, no one else had salary or commissions decreased. Ten years later, I resigned due to the mistreatment toward teams I put together. In hopes I wouldn't resign, I was shown a 30 year plan they had for me. Too late. I took my sales skills elsewhere & performed just as well, compensated accordingly.

In my experience, we simplified the plan by focusing on clear metrics tied to specific goals. We used a tiered structure with achievable targets and transparent commission percentages. Regular communication and feedback sessions helped everyone understand their progress. This clarity not only motivated the team but also built trust, leading to improved performance and higher satisfaction levels. It's like having a roadmap that everyone can follow without getting lost!

start by aligning it closely with your company's objectives, ensuring that sales goals are specific & measurable. Implement a straightforward commission structure that rewards high performance with tiered incentives; consider incorporating team-based bonuses to promote collaboration. Define the performance metrics used to calculate compensation, provide real-time tracking tools; maintain regular communication and training sessions to explain the plan to your team. Regularly review and adjust the plan to stay aligned with business goals and market conditions, while also ensuring legal and ethical compliance. You can create a compensation plan that motivates your sales team and fosters trust through its transparency and simplicity.

A great way to start in my experience is to gather feedback from the team. Good or bad - it's always helpful to understand what worked in last years plan and what didn't. Gathering this feedback by role is a great way to drive improvements so that the team feels heard.

Please... for all things holy... keep it simple! Too often comp plans have 7-8 different levers and mixes in place that make it almost impossible to understand. I max out plans at most with 3 variables, and that's it.

One thing I've found helpful in creating a transparent sales compensation plan is to carefully choose the pay mix, determining the balance between base salary and variable pay (commissions and bonuses) for each sales role. For instance, a role that involves more prospecting and less closing may benefit from a higher base salary and lower variable pay, while a role focused on closing deals may lean towards a lower base salary and higher variable pay. This approach aligns compensation with role-specific dynamics, making it easier for salespeople to understand and appreciate their earning potential.

Definitely keep it simple. If you're looking for an SDR compensation plan, my two favorite are: 1. 100% weight on meeting occurred with an influencer/champion/decision maker. Leads should only be accepted if the seller intends on working the lead after the first conversation. 2. 80%-90% weight on meeting occurrence and 10%-20% on pipeline value. Set a pipeline goal for the quarter There are many options, but if your SDR org is new, it's best to keep it simple and evolve from there.

A great tool to leverage if you’re setting a new planning and looking to compare against other companies is repvue.com which tracks self reported quota attainment and comp across thousands of sellers and organizations.

OTE -: 1. Base compensation 2. Variable component 3. Bonus Don't complicate by cooking assumptions, give it a shot and keep optimizing over time.

For Business Development Rep Sales Plans, I've found that Quarterly plans with 2 buckets and overachievement multipliers are very effective motivators for top tier delivery and accelerated business growth! For example, one 2-bucket plan I've seen work well features a bucket measuring volume (#) of qualified opportunities generated and the other measuring the annual contract value ($) value of those opportunities at the time they are accepted by Sales. The buckets are equally weighted to drive proportionate focus on both the number and size of qualified opportunities passed to Sales. Overachievement is multiplied at 2X up to a cap which is usually defined by your Finance budget & team's historical performance.

One thing I've found helpful in designing a transparent sales compensation plan is to define clear performance measures. These measures, aligned with business goals and sales strategies, play a crucial role in determining variable pay. Metrics like revenue, profit, margin, quota attainment, customer satisfaction, or retention can serve as effective performance measures. Ensuring these measures are SMART - specific, measurable, achievable, relevant, and time-bound - enhances transparency by providing salespeople with a clear understanding of how their efforts directly impact their compensation.

1. No shifting goal posts - Many companies are guilty of that 2. Measurable and impactful - Goals need to be inline with the company's growth plan 3. Easy to understand - A goal should provide a clear foresight to a salesperson to calculate how much can they make?

It's important to get wide buy-in within the organization. Grab one or two top performers and ask them to poke holes. If you have accelerators in place, make sure that the finance org understands and is bought in to these.

?? The incentive structure that I have used successfully: 1. Salespeople have an annual sales target. 2. Salespeople are entitled to a monthly bonus based on a percentage of deals closed. 3. The percentage of point 2 is flexible and depends on the percentage of the target quota achievement of point 1. Benefits: ?? You can set a minimum percentage of quota achievement at which the bonus starts to be paid. ?? The bonus percentage increases as the quota is achieved. ?? At the end of the year, it is possible to pay an additional bonus at a higher percentage (effective at the end of the year) for all deals closed from the beginning of the year. This approach needs to be tailored to the business objectives and maturity of the organisation.

I believe one should be open to feedback and suggestions. Encourage your salespeople to provide feedback on your compensation plan and make suggestions for improvement. This will help you to ensure that your plan is fair and effective for everyone involved.

The last thing you want to do and avoid is beta testing your new comp plan on your sales team. While you may not get it every metric 100% correct, be sure to look at your plan from many angles to catch anything that can have a negative impact. You want to motivate your team while at the same time making your plan achievable.

Before rolling it out, I always stress test it with what I call 'Domino Reps' meaning who are the reps that where they fall the team falls. If they are for it, the team will buy in, if not, they won't. So I pull them in, get their feedback, stress test it so that when it's time to roll it out, I have some internal support as well,

Often overlooked, communication is key. It is important to effectively convey rather than direct sales teams to follow a certain comp. plan.

In my experience there is nothing wrong with making a pivot mid-year if it will improve the team dynamic and drive the right behavior.

Above all else, if you want your comp plan to motivate the highest levels of performance, make it easy to see understand the path to success, and consider removing caps and adding accelerators where possible.

In crafting a straightforward and transparent sales compensation plan, simplicity is paramount. Complexity only breeds confusion; reps should effortlessly comprehend their potential earnings. Aligning the plan with overarching business objectives ensures mutual success—when the team wins, the company wins. Clear, consistent communication is indispensable; every member must grasp the 'why' as much as the 'how'. Regular feedback sessions are invaluable for fine-tuning the plan, addressing any misalignments promptly. Transparency is the cornerstone of trust, and cultivating trust invariably amplifies performance. By maintaining clarity and fairness, you set the stage for a thriving sales team.

If you want an impactful pay plan: 1-Define your goals 2-Determine what motivates your sales team members individually 3-Build the pay plans WITH them 4-Give consistent feedback to each employee