Dear Workforce How Do We Reward Salespeople for Results

Dear Risk and Reward:

Attracting and retaining top talent is a challenge for even the savviest of hiring managers. Most sales representatives expect a compensation package that reflects the quantity and quality of their efforts. Generally, the more money a salesperson makes for the company, the more the salesperson expects to earn. However, when it comes to negotiating compensation, you’ll want to make sure you’re keeping sales performance the top priority. Consider the following:

First, consider the framework for your compensation model—how you want to reward people. Variable-pay models have more incentives for the salesperson to generate business, but they can be unattractive if your territory is cold. Generally, a combination of fixed and variable pay is best. You may want to look at some of your competitors’ job postings and see what is standard for your marketplace.

Consider what you compensate for. Specifically, make sure that your compensation plan promotes the behaviors you are looking for and supports the kind of selling you wish to execute. Think carefully about what role this person will play in the sales process. Will you need someone who generates leads or closes deals? How consultative or transactional is the sale? Is it a product or solution sale? Based on your responses, you may wish to create incentives that link to factors other than revenue (such as volume, profit, contacts generated or customer satisfaction).

Keep it simple. It can be tempting to base rewards on a wide range of factors. However, the compensation system can’t be so complex that the salesperson doesn’t know what should be driving behavior. The package can include gated commissions, bonuses, promotions and more. But, it will only drive behaviors if there are clear guidelines as to how the salesperson will need to perform to reach those benchmarks—and if there is a straightforward, visible process for tracking progress along the way.

Balance risk. If you have never managed an incentive plan in your territory, you may wish to consider mitigating risk for both you and your sales hire. A windfall clause, or cap on incentive earnings, is often added to ensure that the sales representative’s income stays within certain boundaries, enabling management to reduce commission on sales that exceed certain parameters. At the same time, a higher fixed component will ensure that the salesperson’s pay does not fall below a minimum threshold during the ramp-up time.

Don’t be afraid to change. While changing your plan every month would create confusion and distraction, do be sure to track it constantly. And, if it is not doing what you need it to, don’t be afraid to ask for salesperson input and change it.

Although there is no magic formula for creating the perfect plan, you can minimize stress by developing a plan that is aligned with the organization’s strategy, defines desired salesperson behaviors and results and determines what can actually be measured and thus rewarded before implementing the plan.

SOURCE: Seleste Lunsford, AchieveGlobal, Tampa, Florida, January 28, 2008.

LEARN MORE: More information on sales targets/commissions.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.