Blog Article

Don’t write your sales compensation plans backwards

Posted by Michael Vaccaro

Michael Vaccaro

Writing a good sales compensation plan…

January is when many companies are putting the final touches on their sales incentive plans for the coming year.

We have read a lot of sales compensation plans over the years. It remains interesting to us that there really is no common format or approach companies use to document the workings of their plans. In the worst cases, it is difficult simply to figure out how incentives are supposed to work – which means compensation dollars might be wasted, losing a lot of their motivational power for the sales team.

Often, incentive plan documents seem to present information in the wrong order. Sometimes this is because the plan is written from the administrators’ point of view. The result is that a lot of detail appears in the first pages that few on the Sales team really care about, topics like eligibility for incentives; legal conditions; or what happens in unusual circumstances.

Once a plan format is in place, it also does not change much from year to year. Document authors figure that once everyone learns where to look for the information they are most interested in, then it would cause disruption to change the way the document is presented.

We advocate making improvement to the plan document anyway. If there is even a small change made to sales compensation arrangements, take advantage of the change to introduce a more powerful document.

The simple trick is to write the incentive plan document from the point of view of the true audience – the sales team and (to some extent) the business. Highlight the most important items to them first.

If we were to bring together several of the best features we have seen in plan documents over time, here is what it might look like:

  • Start with what is new in the plan, in order to draw attention to those items. Also list what is staying the same, to emphasize continuity and lower the natural level of concern.
  • Describe, in simple terms, what the strategic objectives behind the incentive plan are. For example, if the company wants to encourage growth, noting that will help the sales team understand why the incentive plan is constructed to reward growth instead of (say) renewal business.
  • Create a graphic “snapshot” that summarizes the main plan elements in one place, but is not overloaded with detail.
  • Add a section on “how you will win”. Use this to reinforce the behaviors you want the sales team to pursue, and show how incentives are generated by doing it. (Without this section, the sales team will likely draw their own conclusions as to how to make money).
  • Present a section on each key performance metric in the plan, along with a simple illustrative calculation.
  • After that, the detail can be listed. Organize calculation-oriented detail according to the sections above, similar to footnotes. Then finish with the legalese section in the back, or even as an appendix.

Now, the document will emphasize the messages that drive effectiveness, and the sales team will “get it” much more quickly.

 

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