Thinking About Sales Rep Compensation Plans

Sales rep compensation plans are super important and super challenging. There’s a necessary element of incenting the right behavior while keeping things straightforward and easy to understand. Too often companies make the compensation plan a tome with a corresponding Excel file required for some spreadsheet jockeying just to understand the different commission levers.

Here a few ideas to keep in mind when developing a sales rep compensation plan:

  • Incent the right things — not all revenue is created equal so consider gross margin, profit, etc when incenting results
  • Make the commission policy easy to understand — money is one of many motivators so make it clear how things work
  • Don’t pay full commission unless quota is attained — quota is the minimum a rep should do and should be readily attainable by the right person
  • Don’t cap commissions — why companies do this is beyond me
  • Always have a timely plan — it’s demoralizing to reps to say the plan is changing but then to not deliver it when the year starts
  • Recognize the stars — provide additional awards, incentives, etc for the top performers
  • Align commission payments with revenue received — once the company gets paid the rep should get paid
  • Strive for plan stability — Constantly changing the comp plan can be demoralizing so try to minimize changes and maintain consistency

Sales rep compensation plans are challenging but by following the keep it simple approach, customer interests, company interests, and sales rep interests can all be aligned.

What else? What are some other ideas for sales rep compensation plans?

3 thoughts on “Thinking About Sales Rep Compensation Plans

  1. To your first point (incentivizing the right things), in my mind it’s also possible (and maybe necessary) to deincentivize the wrong things.

    As outlined in a recent post on my site (http://shawnpitman.com/2012/04/17/sales-rampage-the-mistake-of-selling-products-that-dont-exist/), some companies incentivize sales but not profits. As such, the weird combination caused one of my previous employers to reward sales reps for going on a selling binge of products that the company didn’t even sell.

    A possible adjustment to this behavior (and, again, pointed out in your first bullet point) is to incentivize only profit and perhaps punish sales that lead to losses. When dealing with multi-million dollar sales there must be a high standard.

  2. David…I’ve been doing comp plans for 25 years…biggest mistake companies make? They don’t align rep comp plans with leadership? Simply stated? Why should the metrics that drive CEO compensation be different from a sales rep? Once those two things are in synch, goals are aligned, there’s clarity about results. Success happens! My two cents! :)

  3. I recently read the book DRiVE by Daniel Pink. In that he says that people who are intrinsically motivated accomplish more in the long run than those extrinsically motivated. He goes on to say that studies show the correlation between increased pay and motivation peaks at a surprisingly low level. After which, more money actually ends up having a long-term damaging effect on people’s creativity and energy. His solution is to pay people enough to take money off the table and instead help them be motivated by giving them lots of autonomy and helping them attain mastery of their craft. So give them freedom to work how/where they want. Give them some freedom to work on what they want (think Google 20% time). And help them be motivated by the mastery of the craft of turning ideas/products into revenue. (The craft of sales as is relevant to this discussion)

    I haven’t decided if I like this approach for sales people and wonder if anyone here has ever tried anything like this.

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