It’s September.  Summer is nearly over.  Major League Baseball is entering its final weeks of regular season (Go Giants!).  The mornings are dark again and trees are showing tell-tale signs of color.  And, if your company in on a calendar fiscal year, it’s time to ask the question “Is our sales compensation program working?”  You don’t want to wait until Thanksgiving to figure that out.  If you are considering making changes to your program for FY13, the plan design process should begin soon if it hasn’t already.  Where do you start?  Here is brief summary of how to assess your sales compensation program and determine your program goals and design priorities for next year.

It’s all about alignment.  Sales compensation plans work properly when they are aligned in three important ways:  1) to your business and sales strategy, 2) to your compensation design principles, and 3) to the market in which you compete for sales talent.

Strategic Alignment.  First you must ask, how are your business and sales strategies changing as you look toward next year?  Sales compensation plans are tied to roles.  If the sales strategy is changing (target customers, channels, sales process, product/services), then most likely the sales roles need updating.  Start by confirming the go-to-market strategy for next fiscal year.  Are you deploying new channels or roles?  The final “product” from this exercise is a set of one page job profiles outlining the core responsibilities, accountabilities, activities, and desired time profile for each role.

Principle Alignment.  Can you articulate your company philosophy on compensation?  Do you have a set of guiding principles?  It’s much easier to evaluate your compensation plans when you know “true North” for your company.  Are you a nice place to work, or do you want to “feed the eagles, starve the turkeys”?  Setting your philosophy will determine the kind of sales culture you foster. Next, roll up your sleeves and analyze your pay, performance, and plan designs.  How many reps are hitting quota?  What is the performance distribution?  At this stage you want to evaluate both the compensation plans and supporting programs such as territory designs and quotas.  Sometimes the plans are fine but the quotas or territories need alignment to the roles.

Market Alignment.  How do you compare to companies that you compete with for talent?  Most companies benchmark base salary and target total compensation (TTC) and there are several survey houses that offer good pay data.  But that alone will not reveal potential differences in earning opportunity for high performers.  Evaluating other aspects of the plan design including use of thresholds, accelerators, crediting rules, plan complexity, performance period and frequency of payment (to name a few) will help ensure that your compensation plans help attract  and not detract top sales talent.  Benchmarks on plan design are more difficult to find.   The Alexander Group offers such detailed benchmarks as part of our Sales Benchmarking and Analytics Practice.  Carefully interpret your benchmark findings to ensure you are not simply copying market practice but intentionally setting your plan designs to differentiate your company from the competition.

Worth the Investment.  It is worth dedicating time, resources and budget to properly evaluate and update your sales compensation program every year.  The typical company spends 20 cents of every dollar on the sales force.  And nearly half of this goes to sales compensation.  The impact of good sales compensation plans is real – and often translates into productivity gains of 1% to 5% or more.

Please visit Alexander Group’s Sales Compensation practice.

Original author: Paul Vinogradov

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