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New Sales Compensation Plan Checklist
Ensuring Plan Success in the New Year
By: J. Mark Davis, Managing Principal, Valitus Group, Inc.
This is the time of year when, for many companies, new sales compensation plans are introduced. I've often commented
on the need for an effective communication and implementation strategy and, yet, continue to see the launch new
sales compensation plans poorly executed. It's hard to believe that despite knowing the sales compensation plan
is a primary driver of sales behavior (and, therefore, sales organization success), its launch is too often
haphazard and ill-planned. The following are suggested actions that should be on your sales compensation management
checklist as you begin a new plan year.
- Alignment with business strategy – A change in business strategy will likely signal the need for a change
to the sales compensation plan. Even if the business strategy isn't changing materially, take the opportunity
to re-articulate the organization's business objectives and the role of the sales force in achieving them.
- Cost modeling – Any plan change must be considered in the context of the projected cost of funding
the new plan. This should be done in the context of both the aggregate cost to the organization as well
as the potential impact to the individual salespeople.
- Goal setting – For goal-based incentive plans (i.e., a bonus or goal-based commission arrangement),
the plan will be judged largely on the basis of one's perception around the fairness of the performance
goals. Make sure you're able to set reasonably accurate performance goals.
- Sales management on-boarding – Provide the training necessary to make sure the sales management team
is on board in terms of the desired sales behavior the new plan is intended to drive as well as how
to leverage the plan to manage their teams.
- Plan documentation – This is an important reference document that details all of the specifications
of plan. One of the most important sections of any plan document defines the terms and conditions that
govern how the plan is administered. The Terms and Conditions section, in particular, should
undergo a legal review. For more insight on the plan document, refer to an earlier article I wrote,
entitled "Properly Documenting a Sales Compensation Plan.
- Supporting communication materials – These often include presentations for introducing the new plan
in a group setting as well interactive earnings calculators that give participants the ability to
enter various performance scenarios and see the resulting incentive earnings automatically calculate.
- Plan administration capability – A company's IT resources must have the ability to administer incentive
payments under the plan (hopefully using something other than spreadsheets). It may be too late now,
but this is why it's a good idea to engage an IT resource in the design process.
- Plan B planning – Plan for the unexpected. Things change. When they do, will you know how to respond?
I advocate establishing a sales compensation plan governance team that meets at defined intervals
(typically on a quarterly basis) to evaluate year-to-date performance and pay results and determine
whether changes to performance expectations or the incentive plan are warranted.
Driving the desired sales behavior through the sales compensation plan requires effective planning and
active monitoring. The environment is too dynamic; there is no auto pilot. Plan for success; plan for
the unexpected; stay nimble.