The first step in designing sales compensation plans is documenting the Sales Compensation Philosophy.

The Steering Committee determines what the sales compensation philosophy should be. These are the most common topics that I have experienced. Of course the plan should be aligned with company goals. And of course I have seen plans that are not aligned. Profitable growth is a common philosophy that addresses specific measures. Pay for performance suggests a goal-based plan. Minimum performance standards lead to thresholds. A threshold is a performance level where the first incentive dollar is earned after passing the threshold performance level. Standardization is another topic. I have seen sales compensation plans that had multiple plans for the same role, typically because of acquisitions. Realistic goals are oftentimes the feedback from the Design Team and can be included in the philosophy upon approval from the Steering Committee.

You can imagine that this topic is included because previous goals were not realistic. I have a client who has not hit their revenue goals for the past 10 years. I would think that over time, some things would need to change. As I think about their change, it was a different head of sales every other year. Another topic is making the plan simpler. What I have seen is that some companies have baked-in a new measure if they want the sales force to change their behavior. Others would call that type of sales force "coin-operated." They can only get the sales force to act unless they get paid. If you have a coin-operated sales force, I wonder what sales managers do.

How do you determine the sales compensation philosophy? The answer is simple. You have to ask. During interviews with the Steering Committee, you need to ask them about their philosophy on sales compensation. All of their answers can be aggregated and submitted during the first Steering Committee session. During that time, the Steering Committee can vet the answers and agree on the philosophy that will guide the Design Team. Another one of my clients had their project manager send an email to the Steering Committee members asking about their philosophy on sales compensation. Once again, their answers were served up during the Steering Committee session and agreed upon.



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