Effective Sales Compensation Strategies & Programs
Sales compensation is “different” than compensation for other people, if you listen to most members of sales management.? And that, they would tell you, is why they do not want the Human Resources/ Compensation function involved in the formulation of strategies and the design and administration of sales compensation programs.??
Their rationale makes some sense, since in order for one to design sales compensation systems that fit the specific context within which they must operate, the designer must intimately understand the products (goods and/or services) offered, the customers they are offered to, the sales processes utilized, what role each sales job plays and what and how competitor organizations pay their sales people.? That is a great deal to ask of a Compensation practitioner and indeed most do not have that kind of detailed knowledge.? On the other hand, how much and how sales personnel are paid has an impact on the rest of the workforce… people do talk and they love to talk about how others are paid.? The relationship between sales and non-sales personnel becomes even more intertwined at the management levels and it is therefore in the best interests of Compensation to be concerned about what the sales function does.
Effective sales compensation programs utilize the same principles that determine the effectiveness of non-sales personnel compensation programs, leading to the conclusion that skilled and knowledgeable Compensation practitioners have much to offer when sales compensation is the subject.? Sales management has much to offer as well.? The logical conclusion is that sales management and Compensation should work together to develop strategies and design programs for compensating the organization’s sales personnel.??????
Because the performance metrics associated with sales are often quantitative and easily agreed to (e.g., more sales = good performance) one would think sales compensation programs would be relatively straightforward.? Yet sales compensation programs are often diabolically complex.? One reason is that those designing them want to be sure every detail is considered and that no one can “beat the system.”? It would seem there is a suspicion that people who perform sales work have but one mission in life: to get money they did not earn.? There is an associated belief that the only thing sales personnel care about is money.? None of this is completely true, of course, but these suspicions cause sales compensation programs to be in a continual state of revision.
The first step in creating an effective sales compensation system is to develop a strategy that is derived from the objectives of the organization and its business strategy and that is a good fit to the context within which the organization operates.? Often the requirements for organizational success dictate the importance of sales.? A monopoly with no substitutes for its products may view sales as automatic and requiring no special effort.? An organization selling a product that is a commodity, with many competitors, may view sales as its primary focus… its ticket to survival. ? How important sales are to an organization will determine the resources committed to generating sales and the amount of attention paid to how much and how sales people are compensated.??
Given these realities it is necessary to define the context within which sales activities are performed and to formulate a “good fit” sales strategy.? The context is defined by several considerations:
Once the role of sales personnel is fully understood it is also critical that the staffing and development strategies are appropriate, since compensation is not the sole determinant of success.? If the wrong people are hired and/or if they are not developed well the best compensation program will not produce the desired results.? And the degree to which the sales representative is in control of results will be the principal determinant of the mix between base pay and variable pay.? The criticality of the sales force in generating the required revenues will have a major impact on how competitive the compensation package will be.? The degree to which a group effort is required will influence the level at which performance is measured (individual vs. group). ? Finally, the economics of a sale will dictate how much of total sales can be paid out in the form of sales compensation.
The pandemic altered the realities faced by the sales function.? Face-to-face meetings that have been routine may not be possible, making presentations more challenging, or at least requiring different skills. Whether the environment will revert to the old normal or not sales personnel must reconsider how they do their work. Organizations might have to reconsider performance standards if achieving prior sales volumes is problematic given the new environment.
Conclusion
Formulating sales compensation strategies, designing programs, implementing and administering programs and evaluating strategy/program effectiveness should be a joint effort, with sales management and Compensation each contributing.? The bottom-line question is “is Sales Compensation the same or different?? The answer is “Yes.”
About the Author:?Robert Greene, PhD, is CEO at Reward $ystems, Inc., a Consulting Principal at Pontifex and a faculty member for DePaul University in their MSHR and MBA programs. Greene?speaks and teaches globally?on human resource management. His consulting practice is focused on helping organizations succeed through people. Greene has written 4 books and hundreds of articles about human resource management throughout his career.
Managing Partner at Alliance Compensation LLC
6 天前I’ve always enjoyed sales comp work, mostly because of how close you can get to business strategy and the energy of connection to business success. There is a lot more to be said about the why, how, etc. but this is a good overview, thanks Bob.