Manufacturing & Distribution

Rectifying the Decentralized Sales Comp Model

A 5-Step Approach

The accelerating pace of industry growth in recent years has led to many decentralized functions for manufacturers and distributors. As a result of M&A activity, geographic expansion and increased regional or local autonomy, companies now find themselves with a mix of sales compensation programs that are both costly and difficult to manage.

Misaligned sales compensation governance goes straight to the bottom line. Without an effective program in place, companies can experience:

  • Cost misallocation
  • Lack of plan visibility
  • Inadvertent promotion of undesired sales behaviors
  • Disconnect between sales management, seller performance and HR programs
  • Misalignment with corporate strategy and goals
  • Inability to integrate market best practices

A straightforward sales compensation governance program can address these issues. However, the program must be carefully crafted using a five-step approach to overcome the inefficiencies and limited line of sight driven by decentralized operations. This approach includes:

  1. Document
  2. Validate
  3. Platform
  4. Assess
  5. Blueprint

Once manufacturers and distributors put consistent practices in place, they will find it easier to establish a blueprint for the future, integrate subsequent organizational changes, provide appropriate local flexibility and improve their bottom line.

Step One: Document

Companies can evaluate compensation plan efficacy by fully understanding each role and activity across the organization. Identifying all people and processes used in the current sales compensation program is critical. When a company documents how today’s program works, it will discover which changes must occur or the degree to which it must alter practices.

A company should identify all unique sales models across the organization, investigate sales compensation practices across the business and document all information related to:

  • Sales roles
  • Sales compensation plans
  • Pay and performance results

Once captured, these factors will provide unique insights into today’s operations. By documenting the existing combination of compensation plans, pay and roles, the organization gains accurate visibility into its current decentralized compensation program.

Step Two: Validate

After documenting which roles and activities contribute to sales, it is critical to clarify and confirm each role’s responsibilities and objectives. In a decentralized organization, it is common to have misidentified sales roles and outdated job descriptions. Therefore, field-level input is essential to validate that each role has clearly defined responsibilities, expectations and objectives.

Sales leadership interviews will reveal how they expect their team to work together while surveying field sales team members will demonstrate how they execute their roles. Documentation and stakeholder feedback will identify existing or perceived gaps and ensure that compensation plans effectively support the true nature of sales roles as they currently exist.

Step Three: Platform

Documenting and validating roles provide all relevant information regarding each sales role. Most decentralized organizations will discover they have duplicative or conflicting roles that require simplification or categorization. Using a “job platforming” approach, companies can effectively group sales roles into common categories that reflect their contributions and responsibilities.

The platform job approach rectifies job role proliferation, simplifying the job design and sales compensation update process by ensuring that each unique job is appropriately categorized to improve plan alignment. Decentralized commercial organizations can often benefit from reducing the number of sales job titles while clarifying performance objectives, helping them drive desired behaviors. In addition, sellers benefit by having clear goals that support corporate growth objectives and are more closely tied to their job responsibilities.

Step Four: Assess

The organization can assess the entire program after collecting information and calibrating sales roles. This step includes:

  • Clarifying the corporate growth strategy that drives revenue goals
  • Comparing plans to sales compensation best practices for each unique job
  • Analyzing the connectivity between seller performance and earnings
  • Identifying key opportunities for program improvement

The company benefits from increased visibility into sales compensation plans while better understanding the associated costs of the program. Program clarity also allows flexibility while adjusting plans based on regional, product or customer requirements.

Step Five: Blueprint

A sales compensation blueprint allows manufacturers and distributors to maintain organizational consistency while providing autonomy where required by defining centralized guiding principles and guardrails across compensation design elements. As a result, the company creates goalposts within which local sales, HR leadership or other teams must operate while allowing them the creative freedom to build plans that best suit their business and objectives.

Compensation blueprints can be flexible and adjusted to the company’s needs but may also require input and support from HR leadership and other stakeholders. For instance, a company may choose to maintain a decentralized design process or create a center of excellence for sales compensation design, which may require support from people outside of the sales organization.

Sales Compensation Governance Benefits

This five-step process offers a clear pathway to move from localized autonomy to organizational consistency. A strong sales compensation program blueprint will reduce compensation plan leakage and improve the bottom line through better connectivity between seller pay and sales strategy, driving increased profitability.

Developing a consistent, centralized sales compensation governance program provides plan visibility, is cost-effective, drives the right sales behaviors and supports existing corporate objectives. In addition, putting a governance process in place now will set the foundation for future years’ sales planning while keeping pace with the accelerating pace of industry change.


Guidance For Governance

Alexander Group is a market leader in sales compensation planning in the manufacturing and distribution sectors. We help companies develop sales compensation plans that align with your growth and profitability strategy. For more information, please contact an Alexander Group manufacturing and distribution practice lead.

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