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1. Clearly set expectations up-front by communicating what is the core compensation plan for the role versus any special pay consideration that will terminate over time

2. Create some type of temporary “bridge” compensation arrangement:

• A one-time signing bonus to cover any anticipated decrease in salary or short-term loss of incentive earnings owing to the transition
• A non-coverable draw for a limited period to allow them time to ramp up in their new role
• A guaranteed incentive earnings amount for a finite period of time, with the ability to earn over and above the guarantee on the basis of performance

3. Modify the pay statement to list any temporary compensation arrangement as a separate line item

4. Continue to reinforce what is special compensation, reflecting their value to the organization, and what comprises the core sales compensation program to which they are transitioning.

You’re likely spending considerable time and money to attract this revenue-producing talent into the organization. Don’t let an ill-planned pay transition strategy waste the opportunity.

Quantitative Analyses

1. A logical place to start is assessing whether performance results are consistently trending with overall business objectives and the key performance measures designed into the incentive plan. For example, are revenue and/or profit levels growing at expected rates; are the expected shifts in product mix evident? If results aren’t what they should be, the incentive plan likely isn’t the only, or even primary, culprit. You’ll need to dig a bit deeper to make that determination.

2. Next, look at the aggregate cost of incentive compensation relative to budget and performance. Consider the following:

• Effective commission rate – What’s the total cost of incentive compensation as a percentage of top-line revenue and how is it trending?
• Pay dispersion – Does the dispersion between the 90th percentile and 50th percentile payout levels approximate the incentive plan’s upside leverage ratio (i.e., how much as a percentage of the target incentive you are willing to pay for “excellence” performance)?
• Performance range integrity – Are 55% of incumbents in a given role at/above target or quota, 10% at/above excellence, and only 5% below the minimum performance threshold? Deviations here could point to a performance range problem or a fundamental quota setting issue.
• Incentive component breakdown – Is the percentage of total incentive paid by incentive component (or performance measure) aligned with the prescribed incentive weighting for each? In other words, are the reps earning their incentive pay where you intended them to vis-à-vis the plan design?

3. While testing aggregate results is important, you’ll need to “peel the onion” to see how those aggregate results are dispersed on an individual incumbent basis.

• Sales force ranking – For each role/position, sort on incentive payout results from high to low. Are those at and near the top and bottom of the ranking the individuals you’d expect to see there on the basis of current and past performance?
• Performance and pay correlation – Do individual performance results correlate positively to incentive earnings? An easy way to see this is to graph a scatter plot that shows the (hopefully positive) relationship between performance and incentive pay for a given metric.
• Period over period comparison – Are individual salespeople earning more or less incentive pay versus prior year, same period results? Considering relative performance differences, do the earnings differences make sense?

Again, you’ll likely need to tailor these analyses to fit your unique situation. However, be careful not to lapse into “analysis paralysis!” Also keep in mind that these quantitative analyses are a great start, but will provide only part of the picture. You’ll need to complement these analyses with some more qualitative assessments – and that’s a subject for next month’s newsletter.