Close
Learning Methods
Classroom
A traditional classroom couples on-site learning with the added value of face-to-face interaction with instructors and peers. With courses and exams scheduled worldwide, you will be sure to find a class near you.
Interaction
Highly Interactive
On-going interaction with instructor throughout the entire classroom event
Interaction with peers/professionals via face-to-face
Components (May Include)
Onsite
On-site instructor-led delivery of course modules, discussions, exercises, case studies, and application opportunities
Supplemental learning elements such as: audio/video files, tools and templates, articles and/or white papers
E-course materials available two weeks prior to the course start date; printed course materials ship directly to the event location
Duration
One + Days
Varies by course ranging from one to multiple days
Technical Needs
Specific requirements are clearly noted on the course page
Virtual Classroom
Ideal for those who appreciate live education instruction, but looking to save on travel. A virtual classroom affords you many of the same learning benefits as traditional–all from the convenience of your office.
Interaction
Highly Interactive
On-going interaction with instructor throughout the entire virtual classroom event
Interaction with peers/professionals via online environment
Components (May Include)
Live online instructor-led delivery of course modules, discussions, exercises, case studies, and application opportunities
Supplemental learning elements such as: audio/video files, tools and templates, articles and/or white papers
E-course materials available up to one week prior to the course start date. Recorded playback and supplemental materials available up to seven days after the live event.
Duration
Varies by course ranging from one to multiple sessions
Technical Needs
Adobe Flash Player
Acrobat Reader
Computer with sound capability and high-speed internet access
Phone line access
E-Learning
A self-paced, online learning experience that allows you to study any time of day. Course material is pre-recorded by an instructor and you have the flexibility to view content modules as desired.
Interaction
Independent Learning
Components (May Include)
Pre-Recorded
Pre-recorded course modules
Supplemental learning elements such as: audio/video files, online quizzes
E-course materials are available online within one business day of purchase
Optional purchased print material ships within 7 business days
Duration
120 Days - Anytime
120-day access to e-course materials available online within one business day from the date of purchase
Direct access to all components
Technical Needs
Adobe Flash Player
Acrobat Reader
Computer with sound capability and high-speed internet access
Close
Contact Sponsor
E-Reward
Online
Paul Thompson
Phone: 1 44 01614322584
Contact by Email | Website
Close
Sorry, you can't add this item to the cart.
You have reached the maximum allowed quantity for purchase in your cart or the item isn't available anymore.
Product successfully added to your cart!
Price
View your cart
Continue shopping
Please note our website will be down this Friday, November 5 from 9pm ET – 11pm ET for routine maintenance. We apologize for any inconvenience.
WORKSPAN
WORKSPAN DAILY |

Breaking the Rules of Sales Compensation

032422-salescomp-780x450-SM.jpg

Editor’s Note: Workspan Daily will be publishing a monthly sales compensation column from the Alexander Group for the benefit of our readers and to encourage further discourse on topics vital to compensation professionals. New to WorldatWork? Please feel free to join the discussion in our new online community, Engage, or send your thoughts to workspan@worldatwork.org.

Sales compensation is a complex pay program crafted to reward sellers for sales outcomes. Sales compensation designers apply a set of uniform principles to each unique job to arrive at the best incentive plan design. 

032422-KT-salescomp.jpg

But there are circumstances when these principles are not appropriate and sales compensation designers should consider a non-traditional solution. 

Designing an effective sales compensation program is a challenge. However, plan designers can improve plan designs by using a set of accepted principles. This approach helps to avoid mistakes and misalignment between the job’s sales mission and its supporting pay program. But are these principles hard-and-fast rules? Certainly not. They are not rigid, nor non-voidable rules. There are just too many diverse circumstances requiring a flexible approach. 

Let’s classify these rules as guidelines. Better yet, let’s consider them center-practice guidelines. What does this mean? When making design decisions (i.e., pay mix, upside, number and types of measures, and quota methodology), center-practice guidelines offer the preferred design choice. One that many others would select, too. Are center-practice guidelines the same thing as best practices? Well, no. The implication of best practice means that all other choices are inferior. A practical observation recognizes that a suitable solution does not need to align with center practice and another design might be fully workable. From your own personal experience, you know that many rule-contrarian designs work in an effective fashion.

So, does this mean we can do anything we want? No. Following the preferred center-practice guidelines is always the better choice except in select cases. In these situations, sales compensation designers might adopt nonconventional practices to better serve the company’s needs.

Let’s review some classic design principles, and then explore when and how plan designers can modify these center-practice guidelines. Determining the right eligibility, mix/leverage and measures rests on numerous sales compensation center-practice guidelines. There are other policies for crediting, quotas, sales contests and employment status changes, but for our purpose here we will focus on eligibility, mix/leverage and measures.  

Breaking the Rules

The following examples are suggested center-practice guidelines. However, at times, these guidelines can pose a challenge for universal application and don’t work in all cases.     

Let’s examine each of these rules and reveal when sales compensation designers might consider alternative solutions. 

Eligibility. Only jobs that influence customers to act in a positive economic fashion should be eligible to participate in sales compensation plans. Pay should be tied to individual results.  

  • Influence customers: The principle of “influencing customers” provides an important distinction between selling jobs, and those who have customer contact but are not responsible for persuasion. However, this rule stumbles when work practices and accountabilities are non-assigned, fluid and collaborative. Startups tend to operate in this manner during their early “discovery” stage. A companywide team award during a challenging discovery phase might be a better solution. Job-defined sales compensation plans can wait until clearly defined sales jobs emerge.   
  • Pay individuals: Sales compensation plans reward individual contributions. However, when a team of resources are working to win a customer contract, a team incentive would be a better reward. Beyond collective sales teams are groups of employees. Should they be on sales compensation plans? Probably not. But, during periods of cultural confirmation or a shared business imperative, a companywide bonus could provide a shared reward for accomplishing a corporate-wide goal. 

Mix and Leverage. The degree of persuasion required for a sales job determines its pay mix. i.e., more at-risk pay for more influence. Leverage suggests a 3x opportunity where the best performers (90th percentile) earn 3x the at-risk portion. 

  • Mix: Sales compensation designers divide target total compensation (TTC) for a job into two components: base pay and target incentive expressed as a portion of 100%. For example, a 60/40 mix assigns 60% of the TTC to base pay and 40% to target incentive. However, there are no fixed/calculation rules about setting pay mix. Factors affecting pay mix include the company’s view about the role’s influence, market practices and the application of pay mix among all the sales jobs. Here are some trending examples of pay mix: Account managers have a pay mix around 65/35; hunters 50/50; and strategic account managers 75/25 or 80/20. These examples show that the “influence of the sales role” affects the degree of pay mix. For example, why is the strategic manager pay mix 75/25? Why is the pay mix not more aggressive? In this example, the strategic account manager may have a high TTC, but customers are driving the purchases and the strategic account seller facilitates their purchases. The conclusion: Designers have a significant amount of flexibility to set pay mix by job; just ensure all pay mixes for all sales jobs share the same logic and application of policy.
  • Leverage: Leverage determines the upside earning potential for over quota performance. Expressed as a multiple of target incentive, it helps sales compensation designers set payout rates so the best performers (90th percentile) earn 3x the at-risk component (added to the base pay). For example, a TTC of $100,000 and a pay mix of 70/30 would allocate 70% of the TTC to base pay and 30% to target incentive. The best performers should be able to earn $160,000 ($70,000 plus $90,000). The 3x rule is attempting to replicate labor market practices. However, there are companies and industries that do not follow this payout expectation. Some only offer 2x the target incentive, others up to 4x the target incentive. The ultimate answer for how much to pay best performers is comparison to labor market competitors’ pay levels at the 90th percentile. If they pay less than 3x or more than 3x, adjust your pay plan to be competitive with the labor market.

Measures. There are numerous principles for measures: no more than three measures, only output measures, no activity or input measures, only measures the seller can influence, no corporate measures and avoid MBOs (management by objectives). 

  • Three Measures: Most companies use three or fewer measures in their sales plans. Why no more than three? The logic suggests that more measures dilute the focus of the incentive plan making all measures less important as more measures are added. Is this practical in all cases? In some instances, designers need additional measures to capture the business impact of the selling job. As an example, a selling role that is responsible for existing accounts (growth, reducing churn and sustaining pricing) and new accounts (number of new accounts and average order size) might warrant all five measures. In other cases, a company uses a “scorecard” of results, operations, behaviors and activities. A scorecard fuses together these objectives into a unified reward program. Scorecards work for some organizations. 
  • Output Measures: One of the holy grails of incentive design is rewarding for sales results and similar output measures like profitability, product mix or new revenue from new accounts. Input measures (number of new leads) or activity measures (number of calls made) are important metrics for some sales jobs. But do these efforts lead to recognized revenue? Should salespeople be paid for doing something rather than getting something? Consider the sales development representative job, which identifies qualified sales leads for sellers to pursue. Incenting both the number and eventual close rate of the leads may be an appropriate practice for this job. 
  • Direct Influence Measures: Because sales compensation is a “pay-at-risk” program, the ethical conclusion is to use performance measures the seller can affect. This would preclude the use of companywide measures. However, sometimes the company needs to embrace a strategic imperative, such as customer satisfaction as captured by net promotor score or a similar broad-based measure. Should these measures be part of the sales compensation plan? Preferably not. However, when a new value system needs companywide adoption, this measure might play a role in the sales compensation plan.
  • Avoid MBOs: MBOs or KSOs (key sales objectives) have sellers and managers agreeing to a set of specific, unique seller objectives. Often, maligned because of their excessive administrative burden and potential for manipulation, the center-practice guideline suggests avoiding them. However, the use of MBOs/KSOs may be appropriate for strategic account managers when the sales progression success is important as measured by specific tasks and milestone accomplishments unique to the strategic account.

Sales compensation rules, err — center-practice guidelines — provide a strong foundation for designing effective sales compensation plans. However, sometimes, practical considerations play a role in breaking such rules.

About the Author 

David_Cichelli-150w (1).jpg

David Cichelli is a revenue growth advisor for the Alexander Group. Connect with him on LinkedIn.


About WorldatWork

WorldatWork is a professional nonprofit association that sets the agenda and standard of excellence in the field of Total Rewards. Our membership, signature certifications, data, content, and conferences are designed to advance our members’ leadership, and to help them influence great outcomes for their own organizations.

About Membership

Membership provides access to practical resources, research, emerging trends, a professional network, and career-building education and certification. Learn more and join today.