The Six Components Of Effective Sales Compensation Plans
Sales compensation is consistently a top focus area for sales operations leaders. For this reason, we have continued to invest time and resources into evaluating and improving our research in this area. For example, in the past six months, we have updated our research and created an updated sales compensation model. Our goal is to offer the research, tools, benchmark metrics, and expertise needed to support sales compensation teams in using the best standards and practices to build and manage their compensation programs. Listed below are the six components of our compensation model, along with an overview of what is needed to ensure each is operating at the highest possible level:
- Compensation charter. This component connects overall business objectives to sales compensation to ensure alignment. A strong understanding of company objectives is mandatory to a successful plan.
- Plan design. Start by gaining an understanding of the impact compensation will have on rep motivation. Once this is understood, design elements can be used to build a plan that will maximize motivation. Be aware that some roles will not be motivated by compensation, so the plan should be adjusted accordingly.
- Target setting. Understanding total target compensation expectations for each role sets a baseline for how much the average rep should earn. At the same time, the territory structure is determined to ensure the company go-to-market approach is set up to achieve company objectives. The combination of these two outputs determines the right quota for each rep and territory.
- Deployment. Ensuring plan updates, communication, and sign-off are done in a timely and clear manner is critical to the successful adoption of the plan.
- Management. The most resource-intensive part of the sales compensation process is the day-to-day management of the plan and its payments. This can be optimized by creating processes structured to ensure clean integrated data that delivers accurate real-time payout details.
- Governance. Monitoring the plan to ensure it meets company and employee objectives ensures potential misalignment is caught and corrected in time to avoid unproductive outcomes. Sales policies are also managed to keep payment of commissions in line with the formal commitments of the organization.
A compensation plan that truly motivates sales reps to sell more is an invaluable lever to driving company sales growth. To learn more about our research and how we can support you in achieving these results, download our complimentary sales compensation design and management guide.
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