Sales Compensation Program Management: Not Just for Big Complex CompaniesBy: Rachel Parrinello Sales Compensation, Sales Compensation Program Management
There’s more to managing sales compensation plans than simply designing and rolling them out on time — even for smaller companies. Both small and big best-in-class companies invest in some level of foundational program management practices. How can companies big and small effectively scale their sales compensation programs as they grow? A good start begins by deploying the management practices described below:
Platform Jobs: None ⇒ Classification Structure ⇒ Platform Job Decision Tree
Startup companies generally have a small set of key sales jobs — they don’t require a sophisticated job taxonomy structure. As companies grow, the number and types of jobs proliferate. HR titles, business card titles and plan titles become outdated and disconnected (i.e., there is no longer a 1 to 1 relationship between titles and plans). Issues arise — out-of-date job descriptions, inappropriate pay levels and misaligned sales compensation plans. Scaling companies build a classification structure to describe key attributes of each platform job. Key attributes typically include revenue segment focus, territory size, sales strategy, offering focus, sales motion, role in the sales process and sales cycle length. Mature companies (particularly those with multiple business units) need to assimilate all their jobs (regardless of title) across the company within a platform job decision tree. They use this structure to drive consistent application of each plan design component in the form of goalposts (discussed later).
Philosophies/Principles/Component Guidelines: Philosophies/Principles ⇒ Component Guidelines
Regardless of company size, all companies must define their pay philosophies and principles. Pay philosophies include market competitiveness (target total compensation levels vis-à-vis the market), pay for performance (level of differentiation between top and bottom performers), and quota participation rate (percent of participants achieving quota). Principles include topics like strategy/job alignment, pay for performance, motivational and simple. As companies scale and mature, it becomes increasingly important to communicate how their philosophies and principles translate into specific plan design standards in the form of component guidelines. Component guidelines include eligibility, target total compensation, pay mix, leverage/upside, performance measures, mechanics, quotas/goals and special incentives/rewards.
Goalposts: None ⇒ Goalposts
Goalposts define acceptable ranges for each plan component. Simply stated, goalposts are the application of component guidelines to each specific platform job. Small and scaling companies typically don’t require goalposts. However, large companies with multiple business units need them. Goalposts allow each business unit the flexibility to develop their own plans while adhering to best-in-class and market competitive standards. They also provide a methodology for evaluating plan designs across business units for the same platform job.
Process: Calendar ⇒ Work Plan ⇒ Process Map with User Guides
Small companies generally need a high-level calendar articulating key work streams and due dates. Activity ownership is simple — only a few people are involved in managing the plans. As the number of jobs and people grows, companies need to clearly articulate who’s doing what and when to prevent duplication and gaps within the process. Scaling companies need a detailed work plan that articulates all the activities, owners and dates for each of the end-to-end process phases (plan, design, implement, administer, assess and manage). Mature companies with multiple business units developing plans need even more structure. They require a detailed process map and user guides (focused on key process steps like assessments, costing and communications) to ensure they thoroughly train all business unit resources on how to effectively do their jobs.
Governance: Functional Ownership ⇒ R&R ⇒ RACI’s and Multi-Level Committees
Startup companies typically have a small team of key stakeholders responsible for the sales compensation program. All they need is a simple list of responsibilities by function (e.g., sales, sales ops, finance, HR). As they grow, it becomes necessary to detail out the roles and responsibilities for each job within a function (e.g., HR comp vs. the HR business partner). Scaling companies should also structure a sales compensation committee that resolves escalations and exceptions throughout the year. Mature companies should conduct a RACI (Responsible, Accountable, Consulted and Informed) across their process map to clearly articulate responsibilities throughout the end-to-end process. They should also consider a multi-level sales compensation committee to accommodate the multiple business units.
Do you have the right foundational sales compensation program management practices in place for your company’s growth stage? Please visit the Alexander Group’s Sales Compensation Program Management solutions page, read our eBook on this subject or schedule an in-house briefing.