With 2016 upon us, odds are that you have introduced a new sales compensation plan. Reportedly, 80 percent of companies make a change, minor or major, to their sales compensation plan annually. A new client recently shared with us that their last compensation plan was viewed by Human Resources “…as far adrift.” They were concerned as it also paid out incentive earnings viewed as excessive and unanticipated.
To avoid a similar concerning situation, here are three key performance indicators, with helpful questions, along with a qualitative tool to assist you in your sales compensation planning efforts.
Analyze the ratio of the average earnings of the top 10 percent of your salesforce compared to the bottom 10 percent. The ratio should tell you something about the type of selling. The less impact and influence the sales role has on the selling process, the smaller the ratio should be. Two questions to ask are:
- How does the ratio compare to historical pay data?
- To what extent do sales support and technicians participate in the selling process? Is this support available evenly across the entire salesforce?
Compare the actual distribution of performance across the entire salesforce with the expected performance distribution. It is valuable to conduct this type of analysis midway into the year.
Pay Mix for Different Roles
Financial budgets and operating schedules are designed around expected levels of performance and pay mix. With all the merger and acquisition activity that occurred in 2015 and with 2016 expecting similar activity, sales role clarity and internal logic may need to be examined closely.
When you take into account that the pay mix will vary by role, e.g., sales representative vs. national accounts manager, then the actual mix should reflect the impact the role specifically plays in the selling process.
- Is the appropriate market data being used to establish or confirm the proper competitive pay mix for the various sales roles?