Best Practices for Effective Compensation

Compensation plans for sales teams can be one of the trickiest tasks for a sales leader. Countless commission structures fail despite sales leaders’ and business owners’ best intentions because they’re too complicated to be properly understood or effectively implemented.

Effective Compensation PlansOther plans fail because managers don’t explain the plan clearly to the team, resulting in many interpretations of the rules. Sales reps form different opinions of which customers and commissions they should share, and suddenly inside sales is battling with field sales, direct reps are at the throats of the channel team, and as the sales leader, you’re caught in the middle of the fray. When commission plans go awry and cause discontent among the team, selling time is wasted, morale plummets, and sales people resign, potentially stunting your company’s growth.

It’s so important to create a clear, effective and motivating commission plan. It’s what your sales reps’ livelihood and pay is based on, and the commission plan dictates which goals they focus on and the way they perform.

Because of the naturally competitive nature of sales, it’s difficult to create a plan that eliminates all conflict. However, with careful design and reinforcement, along with promotion of cooperative relationships, your commission plan can work for your company and your team. When putting together your compensation plan, consider these four essential things:

  1. Keep the Plan Simple. The more complex your plan, the more room there is for misunderstanding or manipulation. Take the simple example of assigning sales reps by geographic territories. Many managers would consider assigning territories by geography clear cut and conflict-free, but what happens when a rep approaches an account that cuts across several territories? Establish simple and clear guidelines on how these issues will be handled, and communicate in advance how reps will be rewarded for those sales.
  2. Understand the Plan and Its Rules. You’re the sales leader. If you don’t completely understand the plan set forth, you can’t expect your team to. When you’re reviewing and editing the plan, work with your sales manager, and consider bringing in a non-sales manager for an outside point of view. Anticipate the types of questions that your team will have and develop consistent answers. When you introduce a new plan, almost all sales reps will check to see whether their current compensation will decline under the new rules. If that’s the case, ensure that you have clear and defendable answers as to why the changes are being implemented.
  3. Give the Team Time to Understand the Plan. Introduce your compensation plan a few months before you implement it to ensure that everyone knows and understands its rules. If January 1 is the start of your fiscal year, roll the plan out in November. Hold a group meeting to discuss it, giving sales reps the opportunity to hear it clearly communicated by leadership and the chance to ask any initial questions. Then, after giving them some time to digest it, meet with each member of the sales team individually to address questions and concerns that weren’t addressed as a group. This is also an opportunity to ask the sales reps questions about the plan that will check for their understanding. If the same issue repeatedly comes up with your team, you’ll know that there are specifics that need to be communicated more effectively.
  4. Ward Off Conflict Before it Starts. Encourage team building to establish relationships and build trust. If you have sets of competing reps—such as inside reps vs. outside reps—have them meet in advance of the new plan going into effect. The most successful teams I work with engage with their selling partners, bringing teams together to discuss potentially problematic or conflicting accounts. You may even consider establishing agreements in writing regarding how certain customers are to be approached, by whom, and how the commission will be split. Good planning can avoid conflict within the team, which can then trickle down to the customer.

When developing your sales commission plan, don’t forget its main objective: to create specific behaviors among your team. The golden rule of sales compensation is that your sales team will behave exactly according to the plan’s reward system, concentrating their efforts on what pays them the most. If you have a specific objective, such as new customers, more repeat sales, or higher levels of customer service, ensure that you keep those in mind when structuring the plan.