Sales Compensation Payments and Employment Status

By: David Cichelli Sales Compensation

employeesSalespeople are hired. Salespeople leave. Some are promoted. Some go on leave of absence. Everyone takes vacation. Now, what happens to sellers’ incentive compensation pay when these changes occur? Do companies provide a guarantee to new hires? Should companies alter quotas, prorate payments and provide credit for pending sales opportunities?

Each year, more than 25 percent of all companies face a legal challenge regarding the sales compensation program. Many of these disagreements occur when sales management interprets the compensation policies one way and the seller interprets it another way. It’s best to have well-defined policies regarding different employment status treatments.

The Alexander Group’s “2016 Sales Compensation Trends Survey” results provide helpful insight into how employment status affects sales compensation payments. Employment status changes include new hires, lateral transfers, promotions, transition to a non-sales job, involuntary terminations, resignations, paid leave of absence, vacation and the impact of open territories.

The most prevalent survey responses are as follows:

  • New Hires: Incentive Treatment. 48.4 percent of the companies place new hires immediately on the sales compensation plan.
  • Lateral Transfers: Incentive Payment and Quota Treatment. 60.5 percent of the survey participants terminate sales credit for the old accounts and begin credit for the new accounts at time of the lateral transfer.
  • Promotions: Incentive Payment and Quota Treatment. 69.9 percent of the survey participants terminate sales credit for the old accounts at time of a promotion.
  • Transition into a Non-Sales Job: Final Incentive Payment Treatment. 69 percent provide no additional sales credit beyond the last day in the sales job when the seller moves to a non-sales role.
  • Involuntary Terminations: Final Incentive Payment Treatment. 62.2 percent provide no additional sales credit beyond the last day for those involuntarily terminated.
  • Resignations: Final Incentive Payment Treatment. 66.4 percent provide no additional sales credit beyond the last day of resignation.
  • Paid Leave of Absence: Incentive Payment Treatment. 52 percent provide no guaranteed incentive pay for paid leave of absence. 18.9 percent vary the practice by incumbent.
  • Vacation: Incentive Payment and Quota Treatment. 95.9 percent of the survey participants provide no incentive or quota adjustment for those going on vacation.
  • Open Territories: Incentive Pay and Quota Treatment. 24.8 percent allow sellers to keep the full sales credit without quota adjustment for accounts assigned from open territories.

“Varies by Incumbent”
The survey questions allowed participants to select the response “varies by incumbent” as a choice among more defined policy practices choices. It could be that those who selected this response had more specific policies than the available survey question choices. Or, more troubling, companies do not have defined and documented practices. Use the list of policies below to examine your company’s policies to ensure you have a policy statement for the treatment of incentive compensation payments for different employment status changes. (The cited percent is the portion of reporting companies that selected “varies by incumbent” as their policy).

  • New Hire—Incentive Treatment: 12.4%
  • New Hire—Incentive Payment Eligibility: 8.6%
  • New Hire—Length of Draw or Guarantee: 7.3%
  • New Hire—Amount of Draw or Guarantee: 10.1%
  • New Hire—Quota Treatment: 8.7%
  • Lateral Transfers—Incentive Payment and Quota Treatment: 23.1%
  • Lateral Transfers—Treatment of Sales in the Funnel: 27%
  • Promotions—Incentive Payment and Quota Treatment: 17.1%
  • Promotions—Treatment of Sales in the Funnel: 27.8%
  • Transition into a Non-Sales Job—Final Incentive Payment Treatment: 10.3%
  • Transition into a Non-Sales Job—Quota Treatment: 10.8%
  • Involuntary Terminations—Final Incentive Payment Treatment: 13.5%
  • Involuntary Terminations—Quota Treatment: 10.1%
  • Resignations—Final Incentive Payment Treatment: 6.8%
  • Resignations—Quota Treatment: 6.2%
  • Paid Leave of Absence—Incentive Payment Treatment: 18.9%
  • Paid Leave of Absence—Final Incentive Payment Treatment: 18.1%
  • Paid Leave of Absence—Quota Treatment: 12.2%
  • Open Territories—Incentive Pay and Quota Treatment: 10.1%

About the 2016 Sales Compensation Trends Survey
More than 150 companies participated in this year’s annual Sales Compensation Trends Survey. The survey was conducted in December 2015 and published the first week in January 2016.

Read more survey findings in the Executive Summary.

Learn more about AGI’s Sales Compensation practice.

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David Cichelli

David Cichelli contributes his revenue growth knowledge and experience to a wide array of sales organizations. His clients include leading companies in technology, telecommunications, wholesale/distribution, financial services and healthcare. David helps clients redefine and deploy go-to-customer solutions to ensure optimal revenue performance. By applying the Alexander Group’s Revenue Growth Model™, he helps companies achieve their revenue objectives through the coordination of marketing, sales and service resources. These efforts include revenue planning, customer engagement design, sales force configuration, and program design and management. He is the Alexander Group’s sales compensation practice leader.

Widely recognized by national professional associations and trade publications for his work in linking sales compensation to management’s objectives, David is a frequent speaker on sales compensation topics. He is author of Compensating the Sales Force (3rd edition) and The Sales Growth Imperative, published by McGraw Hill. He serves a leadership role in the design of the firm’s revenue growth conceptual models. David is an officer of the company. He is also the author of the 2018 Sales Compensation Almanac, published by AGI Press.

Prior to joining the Alexander Group in 1985, David served for five years as a national practice manager in sales compensation for a leading compensation consulting firm. Previously, he had spent seven years providing support to the field sales organization of a multinational Fortune 200 chemical company. David has a B.A. from Pennsylvania State University and an M.S. from Michigan State University.