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5 Keys to an Effective Sales Compensation Plan

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An effective sales compensation plan will incentivise sales professionals to reach their goals by outlining their earning potential during the deals they close.

Compensate your teams fairly. Pay top performers more while ensuring poor performers don't find ways to manipulate the system and offer competitive pay.

Also, consider the financial wellness of your organisation. Incentive compensation management requires planning. Let's discuss some ways to develop your compensation plan for your sales professionals but first, consider a few questions that will help you create your plan.

Key Takeaways:     

  • Sales compensation plans are essential factors in motivating your sales reps. Design a plan that aligns with your organisation's values and industry standards--along with a few perks.
  • Around 61% of sales professionals feel underappreciated and believe that the companies they have worked for didn't create a clear path to advancement. Each is due to poor compensation plans.
  • To develop an effective sales compensation plan, you need a team who can manage it and a plan that benefits the reps (and the company) and rewards top performers well.

Key Questions To Ask When Developing a Sales Compensation Plan 

A sales compensation plan is an essential factor in motivating your sales teams. Design one that aligns with your organisation's values and industry standards (we recommend adding a few perks your competitors aren't.)

When developing your plan, consider what will help you keep your top talent happy and motivate those still learning to improve their skills. Here are some questions to consider when developing your compensation plan:

  • What behaviors do you want the sales compensation plan to encourage?
  • What are your organisation's performance standards?
  • What is the right compensation based on specific demographics?
  • What objectives of the job role do you want to highlight?
  • What compensation aligns with your sales professional engagement strategy?

How To Create An Effective Sales Compensation Plan

Nearly 61% of sales professionals feel underappreciated. In a survey published by Pipe Drive, sales reps also stated that around 42% of companies they have worked for did not create a clear career path for them to advance.
Infographic of how organizations' compensation plans get the desired behavior from their reps

                   Source: Sales Xceleration 

With labour shortages plaguing companies across every industry, you can no longer take the value sales reps bring to your organisation for granted.

Creating effective sales compensation plans is essential to your sales professional engagement strategy. That can mean the difference between superior retention and high attrition of talent. Here are some key strategies for building an effective compensation plan:

1. Establish a Sales Compensation Plan Design Team

Developing or updating a sales compensation plan should include getting input and support organisation-wide, especially those at the highest levels. Form a sales compensation design team that involves C-suite executives and representatives from the sales, human resources and finance teams. They can provide insight into how the organisation's plan aligns with goals and the impact of the sales professionals on business success.

2. Create a Win-Win Compensation Plan

Typically, sales compensation plans only benefit one party--the organisation. A sales compensation plan should be a win-win for both the company and the sales reps who work for them.

To do this, you will need a well-crafted plan with compensation tied to no less than two of the following three key factors: 

  • Company sales performance
  • Departmental performance
  • Individual sales performance

If your plan ties the salesperson's compensation solely to performance, the business could perform poorly, but the sales professional will still get paid well. In addition, if your organisation achieves its sales target, each sales professional will profit from achieving the company's overall goal. 

Most companies typically specify which portion of employee compensation relates to the impact they can have on departmental and business sales objectives. Imagine an environment where every sales team member has concerns for common goals.  

3. Focus on Balance and Achievability

Companies offer various types of compensation plans. Design the plan that works best for your organisation. It should be easy to understand, have achievable elements and fit each sales position whenever possible. If your teams have to work too hard to hit a quota and get a commission, you should expect high turnover and low morale.

4. Make the Plan Easy To Administer and Understand

That old acronym K.I.S.S.--keep it simple, silly--applies to effective sales compensation plans. They must be easy for your management teams to implement and for your sales teams to understand. If your compensation plan involves a lot of tracking (especially if they have to do it manually), sales teams may spend more time figuring out their compensation than earning it.

5. Make Sure To Reward Top Performers

Reward top performers with extra compensation. You can offer additional incentives if they achieve 100% of their sales quotas along with all plan requirements. We have outlined the reasons why:

  • They did as you asked: When sales professionals achieve 100% of their sales quota, offering additional compensation above the standard commissions makes workers feel valued and want to work harder in the future. Incentivise them to be the highest earner in the company.
  • They stop "sandbagging" deals: Sales professionals will continue to close deals even at the end of the year. Reps who get escalated commissions and bonuses above their sales quota work harder. Do not limit their earning potential. They will not limit their work.  
  • You attract better talent: Organisations that offer escalators and bonuses at and beyond 100% of the quota attract great salespeople. If sales professionals are not focusing on potential earnings by meeting 100% of their quota and above, you do not want them.

Example of Vena's incentive compensation management platform.

           Source: Incentive Compensation Management Software - Vena 

Automate Your Sales Compensation Plan With Vena Solutions

Get a central database, Excel templates and workflow automation with Vena's Incentive Compensation Management (ICM) solution all on one platform. Benefit from efficient and transparent sales compensation plans and improve payment accuracy, visibility and sales performance.

Manage your entire compensation process, automate compensation calculations and spend less time auditing. Use the insights from our ICM solution to develop your sales compensation plan.

iStock-1359859099 (1)
Excel at Sales Compensation Planning

Let your sales teams know that you value them while also ensuring the financial wellness of your organization with Vena Incentive Compensation Planning Software.


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About the Author

Olivia MacDonald, Senior Manager of FP&A, Vena

Olivia MacDonald is a Senior Manager of FP&A at Vena. A creative problem solver who enjoys analyzing and detangling complex situations to make things better, she’s experienced in leading multiple projects at once and has found the key to success to be documentation, communication and teamwork. Olivia is passionate about removing manual, clunky and repetitive tasks from finance professionals’ working days so they can focus on what they believe truly adds value to the business instead. At work, she’s also heavily involved with Vena’s Women+ employee resource group, which collaborates with thought leaders and companies across the globe to remove intersectional barriers in the workplace. Outside of work, Olivia also takes part in youth engagement and education programs as a volunteer.

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