Making Sure Your Compensation Plan Drives the Desired Objectives

One of the most important considerations when designing and deploying compensation plans is not to get caught in a ‘‘legacy trap.’’ More than one sales manager has found that she inherited a plan that was based on a past business environment requiring a very different set of competencies and behaviors. Don’t let this happen to you. Review and ask yourself the following questions:

• When was the current compensation plan designed? If it is more than three years old, it’s out of date with regard to industry changes.

• What was the complexity of the products or services sold at the time the plan was designed? Has your product become more complex with options, add-ons, or multiple applications?

• What was the required level of customer relationships at the time the plan was designed? Maybe in the beginning your personnel sold to buyers, but now your product must be sold to departmental managers or corporate leaders. Or, maybe it’s the reverse as your product became highly substitutable from ‘‘look-alike’’ competitors.

• What was the competitive environment at the time the plan was designed? Were there many competitors the last time you changed your compensation plan? Maybe you had the marketplace to yourself at that time, but now you find more and more look-alikes that make it hard to differentiate and cannibalize your profits.

• What was the pace of business at the time the plan was designed? How urgent was the sales activity when the plan was developed? Had anyone ever heard of just-in-time deliveries? How many accounts were sales professionals required to service or sell to? What was the standard delivery schedule, and how has technology changed customer expectations? How long did a new salesperson have to develop into a ‘‘producer’’ at that time? Has that changed?

• What was the utilization of technology at the time the plan was designed? When your compensation plan was last modified, was there the overlay of technology on just about every activity the salesperson performed (pager, e-mail, voice mail, PDAs, cell phones, teleconferencing, etc.)? Remember how secretaries were made extinct by computers, voice mail, and e-mail? In the past, how much of the salesperson’s time was spent selling and how much managing the flow of information?

• Now, what’s changed? You can bet that things have changed! Just review the business drivers and consider how much and how fast these areas have changed.

• Does the current compensation plan reflect these changes? Just because ‘‘things’’ change, it doesn’t mean your plan is wrong. Perhaps it was so well designed in the past that a natural flexibility was built into it. Maybe you need to make only minor changes. On the other hand, maybe you need to toss out the whole program and begin again from scratch!

As the link between senior management and the sales team’s activities in the target market, it is your responsibility to ensure that the total compensation plan is always in line with a continuously changing business environment. There are three areas to consider. They are:

1. Direct Compensation. Salary or fixed pay, performance or at-risk commission, deferred bonuses.

2. Benefits. Social Security, health or other insurance, profit sharing, stock options, tuition reimbursement, etc.

3. Reimbursed Expenses. Travel expenses or car allowance, entertainment, communications, office or technology expenses, etc