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What is sales compensation

what is sales compensation

Sales Compensation

Companies are being forced to totally rethink their business model and marketing strategy as a result of an extremely challenging economic marketplace. Stakeholders and boards are demanding increases in the bottom line. Because of the economic stagnation, companies are finding it increasingly more difficult to increase prices, and are facing market pressures to drop prices even further.

In the past, as revenue increased, sales commission plans built on revenues actually created an unintended, yet, de facto increase in commissions. This invisible increase in compensation resulted from sale of the same units with increased costs. The economic situation has put a halt to run-away sales and price increases, and actually exacerbated the pressure on margins. More importantly than before, it is critical that companies take a hard look at their sales commission plans, and determine if the company and their sales force are actually being well-served by a pay program that in all likelihood needs to be revamped.

A well-designed sales compensation package will enable the company to focus its sales

activities on desired results, tie the rewards directly to achievement level, and be sufficiently flexible to handle future market shifts. As the organization’s business model and marketing plan vary, the sales compensation package needs to reflect this new strategy.

The key to a successful sales compensation program can be achieved in four (4) steps:

    Clearly defining sales expectations and goals that are realistic but challenging.

Tracking and accurately measuring performance against expectations.

Rewarding achievement with competitive compensation and motivational features that provide a Win/Win for both the company and the sale force.

Monitoring the results, modifying the plan when necessary, and keeping the sales personnel informed.

Sales compensation packages typically comprise one or more of the following components:

    Base salary or draw against commissions

Commissions tied to short-term goal attainment

Incentives/bonuses tied to annual sales results

”Spiffs” and other focused incentives

Achievement or Career recognition

Participation in long-term equity type plans, particularly for Super Stars

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