Sales Compensation Principle #1 (of 10): Plan EligibilityBy: Rachel Parrinello Sales Compensation, Sales Compensation Program Management
The most common eligibility guidelines include the following details; the primary job must meet ALL three of the following criteria:
- Significant customer or partner contact
- Persuade customer/partner to buy/resell Company offerings
- Clear and quantifiable sales goals
But what about other jobs that have customer contact? Should they be eligible to participate in the sales compensation program? What about field marketing jobs, customer success personnel and lead generation roles? And what about sales support personnel such as sales administration, sales operations and in-bound order entry?
Calibrating the Eligibility Criteria
Companies can narrow or widen the eligibility criteria.
Example guidelines that narrow the criteria include:
- Specific time allocation focused on selling (e.g., 80 percent of time)
- Ability to measure and track sales goals
- Can clearly tie revenue to influence/persuasion
- Is responsible for a sales quota
- Is assigned to a sales territory
Example guidelines that widen the criteria include:
- Progress an individual opportunity to qualification status (includes Lead Generation representatives)
- Persuade the customer to act in a positive financial benefit (includes business development roles focused on reducing costs)
- Persuade the stakeholder to adopt or use Company offering (includes Customer Success representatives)
- Responsible for optimizing revenue (includes digital media campaign optimization roles)
- Persuade stakeholders to buy Company offerings via direct contact or one-to-many campaigns (includes digital/online store managers)
A Detailed Look at Persuasion Criteria
Industry professionals use the word “persuasion” a lot. Why? Well, the most important asset in your sales organization is your sellers’ time spent persuading the customer to buy your product and consequently generating revenue. And companies gear the sales compensation plan to pay those sales representatives for their persuasion activities. Therefore, persuasion is a key element to many sales compensation design components, eligibility being a primary one. Be aware…many industries/sales models have additional persuasion events besides closing a contract—obtaining technical sign-off, progressing an opportunity and driving adoption/usage.
Another key concept to leverage when thinking about sales compensation eligibility is the Types of Variable Pay Programs available. The most common type of sales compensation plans are as follows:
- Unit Rate Plan – Companies use this plan for agents (e.g., real estate agents, independent agents and brokers) where the market dictates the commission rate. A test for agents is whether they can take their business with them if they leave the company.
- 3x Uncapped – This plan works best for sales roles that represent the company’s products and services when sellers cannot take their business with them if they leave. Sellers earn a base salary and a target incentive based on market labor rates. Target incentive is pay-at-risk and not paid until the seller achieves a sales goal. The mix between base salary and target incentive is expressed as a percent of the Target Total Compensation (e.g., 60/40 means 60 percent of TTC is base salary, and 40 percent of their TTC is target incentive). For every dollar at risk, sellers are eligible for three times the target incentive in upside pay that is uncapped (thus 3X uncapped).
- 2X Capped – This plan is used for executive programs, consumer packaged goods and some professional service roles. Sellers receive a base salary and an at-risk target incentive based on market labor rates. The target incentive is generally expressed as a percent of the base salary. For every dollar at risk, sellers are eligible for two times their target incentive in upside pay, and their upside is capped (thus 2x capped).
A common mistake that many companies make is to allow non-sales roles onto a sales compensation plan. We find this particularly acute when companies do not have Corporate Gainsharing or Bonus Plans. Some stakeholders will desire to put customer service, marketing, sales support/coordinators, sales operations, deal desk and other roles onto the sales compensation program as they seek to recognize and reward performance. However, “pay-at-risk” plans require the incumbent to have significant impact on outcomes. It is ill-advised to subject these jobs to down-side earnings when their efforts cannot directly drive outcomes.
Eligibility Application Notes
There are many guidelines, concepts, frameworks and practices when it comes to sales compensation plan eligibility. The Alexander Group (AGI) recommends that each company develop their own guidelines that align to their specific philosophies and principles. Companies should determine plan eligibility at the job and not incumbent level. When developing a new job, sales should work with HR to confirm the job role and responsibilities and whether or not it adheres to company eligibility guidelines. Eligibility guidelines do not always need to align to market practice; however, companies do need to consistently apply these guidelines and support the overall philosophy of the company. When building out eligibility criteria, sales organizations must articulate how each criterion will impact current/future roles’ eligibility, so leaders understand the impact of their decisions.
How the Alexander Group Can Help
If you need help with your eligibility criteria or any other sales compensation plan design question, please contact us at the Alexander Group. We offer a range of solutions from half-day workshops, to principle framework development, to full plan design engagements.
Learn more about AGI’s Sales Compensation practice.
This is the first in a ten-part series examining the components of sales compensation guidelines. Read Part 2 of this series.