9 Steps to Developing a Sales Compensation Plan

If you’re not sure where to start when devising a new compensation model, check out these handy tips.

By Martin Sinderman

1) Define your overall objectives for sales compensation. Determine which objectives are critical to the company’s success and how all other objectives relate to those critical success factors.

2) Establish quotas based on realistic estimates of average sales per sales rep. Make certain that the total of all quotas adds up to or exceeds the corporate objectives.

3) Develop appropriate ranges for salaries, incentives, and targeted total annual earnings. How much should your average sales rep earn upon obtaining his or her objectives?

4) Design the plan structure. Determine:

• Who will participate? Direct salespeople only?
• How much can you allocate to sales compensation?
• On what will incentives be based? How will compensation be tied to objectives?
• What mix of guaranteed base and variable incentives will be used? 
• How will incentives be calculated? What will be the commission rate structure?

5) Model the plan to test its soundness.

6) Determine how the plan’s results will be monitored and administered. When will sales reps be paid? How often and how soon?

7) Secure compensation plan approval.

8) Decide how to communicate the plan to the sales organization. How and when will the plan be documented and announced? What are the hazards or advantages of premature announcement?

9) Implement and monitor the plan, making midyear refinements as appropriate.

MARTIN SINDERMAN is an Atlanta-based freelance writer.

Source: Culpepper Compensation Surveys, www.culpepper.com