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Compensation Insights

Start Designing Your Sales Incentive Plans Now!

compensation plansWith the new year only a few months away, you should already be thinking about your company’s sales incentive plans. Did you know the shelf-life of even the most well-designed sales incentive plan is only about two years? Tinkering with your company’s current plan just won’t make it today’s competitive marketplace.

Here are some tips and insights that will help you design an effective compensation plan for 2017.

Assess Your Current Plan

Before designing a new sales incentive plan, establish your 2017 business objectives and ask these strategic questions:

  • What is our organization’s desired market position?
  • What factors are driving sales now? How is this different from the past?
  • Have we consistently met our sales and profit goals?
  • Do our sales incentive plans drive the right behaviors and outcomes?
  • Is there a connection between what senior managers are communicating and how our sales incentives are working? 

Ask your sales people what they like and dislike about the current plan. They can often provide valuable insights about how well the sales incentive plan plays out against the competitive pressures they see in the market.

Other tactical questions to ask:

  • Does the current plan drive sales of new or tried-and-true products?
  • Does the plan provide the right incentives for different products or focus solely on sales volume?
  • Are some sales people gaming the incentive plan to maximize their bonuses – but not company margins or profits?

One McDermott Associates client, a food ingredient company, had a sales compensation plan with sales revenue incentives, but did not take into account margins. We examined their sales figures and calculated that 20% of their products accounted for 80% of gross profits. Working together, we realigned their plan to provide the greatest rewards for selling the higher-margin products.

Plan for Timely Communication

Incentive plans can end up poorly implemented because they have been poorly communicated. Build the communication launch for your new sales incentive plans so that communications start 1-2 weeks before the plan’s effective date.

You don’t want to be the company that begins its fiscal year in January and publishes its sales incentive plan performance measures in April. This is lost opportunity! The sooner sales people have the opportunity to understand and buy into the new plan, the sooner your company will reach its goals.

Don’t make your plan too complicated. Good sales incentive plans have direct line-of-sight, meaning they clearly state how incentives are awarded and how compensation serves the company’s business objectives. Tie incentive compensation directly to simple measures, such as sales or gross profit – something sales professionals can impact.

Seek an Objective Opinion

We believe understanding company culture is a critical step in the compensation plan design process. This can be difficult to do when you are part of the culture yourself. So it’s often helpful to seek an outside, objective assessment from a knowledgeable, unbiased compensation consultant.

At McDermott Associates, for example, we conduct confidential interviews with business leaders, sales managers, and the sales force. We assess morale, turnover, what is succeeding, and what isn’t. We gauge the need and tolerance for change. We believe the time invested in understanding each client’s company culture results in a compensation plan that is tailored to the company’s needs and improves opportunities for success.

Give Your Plan a 6-Month Checkup

We have found it’s best to assess a new plan after it’s been implemented for six months. At that point you'll want to analyze bonuses and payout results. You’ll rarely want to switch plans mid-year, but you may want to make adjustments so that you achieve the desired results.

A final tip: If it turns out you can’t track a performance measure on your plan, don’t use it. You need to know what is – and what is not – bringing in the sales that will help your company achieve its goals.

Need help structuring your 2017 compensation plans? Contact our CEO, Don McDermott, at dm@dgm.com or (732) 842-8634 for a no obligation initial consultation.

 photo credit: Tamara Evans

Tags: compensation, compensation plan, comp plan, sales force, sales force compensation plan, sales team, sales force compensation, sales incentive plan, business objectives