Sales compensation season is openBy: David Cichelli Sales Compensation
Each year, over 90% of companies change their sales compensation plans. Anticipating the start of a new fiscal year, sales organizations update their sales compensation plans well in advance. This makes the fourth quarter of the fiscal year: “Sales Compensation Season”.
Most changes deal with the plans’ performance measures, which makes sense. As a company’s sales focus changes, the sales compensation performance measures will change too. While sales revenue is normally a constant performance factor, sales management will make changes to other measures such as product mix, profitability, new accounts and contract terms.
Our research confirms that among the 90% of the companies making changes; about 15% to 20% will make significant changes to their pay programs. That means almost every five to six years, on average; sales departments perform a major overhaul to their sales compensation plans. These efforts include a top-to-bottom review of all plans; a necessary exercise to keep the program in alignment with corporate objectives.
However, absent a major review, sales compensation plans typically get many minor adjustments during the interim. The trick here is to make sure these minor adjustments, sometimes called “tweaks,” are logical and compatible with existing plan features. While a “minor” change might seem insignificant, unforeseen outcomes can occur if the plan testing is not comprehensive. A noteworthy place where “surprises” lurk is any change to the sales crediting practices, or ‘who gets paid for what’. Whenever sales management considers such a change, follow the money to make sure it’s fully accounted and not over-credited.
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