What Are You Compensating?
Sales compensation boils down to a simple philosophy – you either compensate for effort, results, or some combination of the two. So if two territories bring in R1 million and R10 million respectively, how do you pay the salespeople? If you’re rewarding results, the latter territory gets the lion’s share of the compensation. But what if the former territory is much tighter, and offers less opportunity? Then perhaps the salespeople should be paid roughly the same, because the effort was equal.

There is no right answer, but companies must at least understand the philosophy behind whatever approach they take to sales compensation, and then apply it fairly and consistently

What Are Your Priorities?
Your plan probably consists of some combination of salary and incentive pay, right? Whose doesn’t? And whenever a tweak is suggested, the only question companies ask is, “Can we afford it?” If the answer is “no,” then adjustments are made to the sales targets and that’s that. But another element to consider is business context. That means reviewing the company’s long- and-short-term strategic priorities, the product mix, and how you approach customer needs. These elements should point in the direction where rewards should be offered. This approach will also help HR design programmes that maximize the company’s sales compensation ROS.

Everybody Grab a Seat
Typically, HR, sales, and finance work together to come up with a compensation plan, which is then raced up to senior management for approval prior to the kick-off meeting. A better approach would be to include other interested parties, including legal, product marketing, and IT. This will avoid undue troubles down the line - like legal refusing to approve or IT saying it can’t implement the programme – that tend to crop up with hastily thrown together plans.

Work Backward
The mix of a sales team’s incentive and base pay combines to produce a total cash figure. Companies will often tweak these figures independently in an effort to be more competitive or make the company more attractive to new employees.

Trying to match what other companies are offering is not an effective strategy for driving the right behaviours. Instead, companies should begin by developing a specific cash target for the company, and develop an appropriate mix of base and incentive pay for a given type of sale. The numbers should reflect not only the behaviours the company is trying to motivate, but also the reality of the marketplace. And whenever an element in the validation process appears to be off, rethink the whole formula, not just that one element.

Times (and Roles) Have Changed
With the complexity of today’s markets, not to mention technological changes and the push toward globalisation, the traditional “hunter” and “farmer” roles for salespeople need to be re-thought. As sales roles have changed, so should the compensation patterns. In an era when customer relationships are the key to profitability, companies that cling to outdated notions of how salespeople operate will not function at optimal levels