Sample Sales Compensation Plans: Don’t Be a Copycat
More than 100 company leaders downloaded a sample sales compensation plan last year, and I’d like to think that’s a good sign. It means CXOs and VPs of sales are calling their current plans into question, and preparing to leverage the relationship between strategic incentives and strategic goals.
The bad news? In speaking directly with more than a few of these sample plan downloaders, I’ve learned that some are copying the plan language and measures word for word—in effect, using the details of a mythical company to drive their sales teams’ performance. I’ve even seen a copy of a signed commission plan agreement for a prospect that was a direct copy of this sample plan, including terms and conditions! That company had not updated the document in many years. No wonder their revenues numbers were way below plan.
At the risk of sounding like your 10th grade English teacher, copying doesn’t do you any good. Sure, copying is easier and faster. But it’s also pretty risky. The definitions and policies included in a sample plan template should be customized to fit your business model, your compensation philosophy, not to mention your overall budget and goals.
Otherwise, too many things can go wrong. For example:
1. You’ll end up paying more than you thought.
In one case, a sample sales compensation plan downloader ended up paying more than $20K above his organization’s intended target total compensation for sales. He missed a critical check point in the commission plan design.
2. You’ll end up driving the wrong goals.
The sample plan was designed to drive the objectives of a mythical technology company. Your priorities may be very different (e.g. to achieve X in profit, to reach X level of revenue, to secure X number of renewals, to further penetrate existing customers, to acquire X new customers, etc.). Your plan should put the most weight on the measures/goals that are most important to you.
3. You may underpay your sales reps… and lose them.
Paying sales reps appropriately for performance means looking at a few key variables, like: What’s the average salary for reps in your market/geography? What are your competitors paying? With answers in hand, you need to examine if the elements of your compensation plan support target numbers or not.
4.You may unintentionally impact reps’ earning capabilities… and lose them.
Although commonly overlooked, attainment assumptions for individual reps should be factored into your sales compensation plan design. Adjusted plan measures can have a dramatic effect of what reps earn, year over year. A key step in a compensation planning process should be to evaluate the new plan’s impact on all sales team members but if you don’t have access to modeling tools at least evaluate the impact on your key sales team members. Modeling will help you anticipate compensation budget issues and attrition risks before they happen.
5. You’ll limit your ability to manage sales performance throughout the year.
A sales compensation plan is a great place to start the work of motivating and managing sales teams. But even the smartest plan is still just a static document. You need a plan that’s also connected to sales performance analytics, so you can review company-wide sales performance in real time, see where reps are focusing their attention, and act on coaching opportunities you might otherwise have missed.
6. You’ll wind up in court.
This is a biggie. Different states have different requirements, in terms of spelling out sales commission policies (e.g. crediting, recovery provisions, etc.). Some states aware triple damages to the employee! A sample plan may not meet all the legal requirements in the state(s) where you do business. In addition to having it reviewed by a qualified legal team, take this advice on how to avoid employee lawsuits.
So go ahead. Download a sample sales compensation plan. You’ll be able to implement someone else’s strategy! But if you find yourself tempted to copy and paste big chunks of it, please call me first. I can help you shape your best plan, plus set you up for better sales performance all year long.