Sales Force Compensation

One of the first challenges is to create a plan that supports both experienced professionals and new hires.

The experienced veterans usually feel that they contribute more to sales success than they are rewarded for and are somehow being held back or driven to a mediocrity by the compensation plans that are capped at too low a level. And you are probably going to compensate new hires at a level that is far more than they are worth in the earliest stages of their careers.

Always keep in mind that sales professionals will sell the products and/or services in the manner reinforced by your compensation plan. This is not necessarily a bad thing since it allows you to change directions quickly just by changing the compensation plan. But, please, don’t change it so often that you discourage sales production. Your long-range plan should be to provide a total compensation plan that drives your sales professionals to excel beyond what you pay them.

The challenges involved in developing a successful compensation plan are many. For one thing, money is not the only form of reward desired by many individuals. Their personal and professional goals, along with the necessity of meeting or exceeding corporate-directed goals, must be taken into consideration. Some additional forms of compensation may include bonuses, benefits, increased authority or responsibility, increased visibility, increased autonomy and independence, reimbursed expenses, or any of a myriad of other personal wants and needs based on personality type and value system.

The easy part of planning sales force compensation involves deciding how much your salespeople should earn in total dollars; the sum needs to be attractive enough for you to recruit and retain talent. The hard part is determining what portion of that total should be fixed versus what percentage should be performance or ‘‘at-risk’’ pay. This balance between fixed and ‘‘at-risk’’ compensation depends on several factors, including:

• The Needs of the Company. How much of its margin can the company afford to withhold for sales expense? How is the sales compensation plan perceived in relation to other important company functions? What is the current condition of the company, and what are its long-term prospects?

• The Needs of the Salesperson. What is the cost of living a quality life in the area in which the salesperson lives? How long will it take for her to become top performers if she is a new hire? What about rising medical and dental costs? What about retirement plans?

• The Level of Salesperson You Want to Attract. Are you looking for someone to step immediately into a higher-level selling situation and produce immediate results? Maybe you are looking for a new, inexperienced salesperson who will have the time to grow into the role. Are you requiring the sales professional to have any preexisting knowledge or experience, such as certain degrees or certifications?

• The Salesperson’s Ability to Influence the Sale. Is the sales professional going to be required to service existing and well-established customers or will he be required to have highly refined selling skills to open new customer doors and close new sales? Will the salesperson concentrate more on farming activities to grow the revenue with existing accounts or will he be more of a hunter, searching out new prospects?

• The Type of Product or Services Sold. Is the product a commodity as, for example, paper towels, or is it a complete, multifaceted solution to complex customer business challenges like enterprise-wide software? What is the length of the sales cycle—two days or two years? Will the product or service require significant after-sale time commitments by the salesperson?

• The Specific Behaviors or Competencies Necessary for Success. Think about the competencies required in the planning activity you did earlier. Are there any new competencies or behavioral attributes required, including technology or scientific skills, financial analysis or accounting skills, high-level presentation skills, and so forth?

The compensation plan must be clear, concise, and measurable to all involved parties right from the outset. In its most basic form, it sends a strong signal to the rest of the organization concerning the emphasis being placed on your sales team. It can define your company as having a market position oriented toward the professionalism of its customer interface team, or it can communicate an attitude of ‘‘we have to put up with salespeople, but they aren’t that important around here.’’ The company’s short- and long-term focus, the value of the sales department, the value of the product or service, and the desired relationship with the customer will all come across in the compensation plan