The Best Laid (Compensation) Plans

They say choice is good. Obviously, they have never put together
a sales commission plan. Commission plans come in a million varieties
– and each one’s a disaster waiting to happen. This week, Engage offers
some tips for steering clear of commission calamities.

In one way, commission plans are the hammer of the sales manager’s
motivational toolkit – almost every company uses them to build revenues
and reward excellence. But unlike the implements that hang from the
average handyman’s belt, commission plans come in millions of shapes
and sizes. Instead of picking what you need from the shelf at Home
Depot, you’re expected to work the millions of combinations and permutations
into a commission plan of your own. Each is new, unique, and a disaster
waiting to happen.

Countless commission structures fail despite the best intentions
of business owners. Many plans are too complicated to be properly
understood or effectively implemented. More fail when sales managers
don’t explain their plans properly. The result: everyone comes up
with their own interpretation of the rules, and forms a unique opinion
of which customers and commissions they share. Before you know it,
inside sales is battling with field sales, direct reps are at the
throats of the channel team, and you’re caught in the middle of the
fray. Selling time is wasted, morale plummets and salespeople start
to resign. That’s no way to grow a company.

In 20 years of selling, I’ve never encountered a compensation plan
that eliminated all conflicts. But with careful design and reinforcement
of cooperative relationships, you can have a commission plan that
works. Here are things to consider:

1. Keep your plan simple. The more complex the compensation plan,
the easier it is to misunderstand or manipulate. For example, if your
salespeople are assigned to geographic territories, be sure to develop
and communicate clear guidelines on how they can sell to accounts
that cut across territories, and how they’ll be rewarded for those

2. Understand the plan and all its rules yourself. Review and edit
the plan with your sales manager, and bring a non-sales manager into
the discussion for a different point of view. Together, you should
anticipate the questions your team will have and prepare solid answers.
Remember: your salespeople will check whether their potential compensation
might decline under the new plan. If that’s the case, be prepared
to defend the changes.

3. Make sure everybody knows and understands the rules. Introduce
the plan a couple of weeks before you plan to implement it, giving
your team a few days to digest its contents. Then hold a group meeting
to discuss it. Meet with each salesperson privately to reinforce the
plan and address questions and concerns that weren’t raised before
the group. Ask your people about the plan to check for understanding.

4. Encourage team building to ward off conflict before it starts.
Have competing reps (for instance, inside and outside sales) meet
to establish relationships and build trust. The most successful teams
always engage with their selling partners.

Bring teams together to discuss potentially problematic accounts.
I have seen some plans that actually required an agreement in writing
of how customers can be approached, by whom, and how the commission
will be split.

One more thing: your sales team will behave exactly according to
how the plan best rewards them, concentrating their efforts on what
pays the most. If you have a specific objective (e.g. new customers,
more repeat sales, higher levels of customer service), then you must
reward the behaviors that pursue those goals. Lucky for you, you
have no choice.