As many people are aware, those who work in sales don’t always get a fixed-pay salary as their total compensation for work. As a way to encourage salespeople to do their best, most sales jobs include commissions or bonuses according to performance. The reason for this is because sales is a highly competitive area to go into. These payments linked to performance are a way to encourage improvement (and even competition) in a healthy way.
In order to understand exactly how this compensation works, it is important to design a compensation plan listing all of the ways an employee can benefit from performance improvement. There’s not a specific way to do it, but some ways work better than others. Some of the issues and mistakes you need to take into consideration when creating your compensation plan are:
1) Making a plan that is too complicated
In order to be interested in a certain plan, a person needs to understand clearly what they can gain from it. Considering how a compensation plan is a great part of the remuneration of a sales rep, they will want to make sure they receive the best plan they can. If your compensation structure is convoluted and complex, it may steer people away.
2) Failing to update and monitor the plan periodically
After spending a long time designing the perfect plan, you might think that this plan can work for years. The truth is that plans need to change at the same pace as the market does. Considering how there are many unpredictable factors that can affect sales (seasonal pricing, technical issues, unforeseeable financial problems, etc), it is imperative to adapt the plan according to these changes. Otherwise, the quotas might seem unreasonable or unfair, and it will be hard to keep morale up.
3) Failing to communicate compensation changes
If you’ve followed tip #2 and you have been adapting your compensation plans, with great benefit, then good on you. However, if you fail to report these changes,, they might be either rendered useless or too confusing for some. Not telling your reps about new commission plans won’t allow them to take advantage of the changes. Additionally, since the compensation plan is built around how you want to influence and motivate your team towards a certain direction, failing to properly explain and warn of changes is setting your team up for failure.
4) Copying other companies’ plans
While there is nothing wrong about looking into other companies’ plans (as you’re actually encouraged to do so for reference), copying them is not the most effective measure. No two companies’ goals, missions, or values are the same, so their compensation plans can’t be, either. As a company team designs a compensation plan, they do so based on all of these aspects, so one company’s commission plan won’t be perfect for another.
5) Rushing the plan’s design
There is a certain amount of pressure both from the market and your employees to make sure your plan is up to date while also being attractive. However, each detail of your commission plan needs to be thoroughly thought out before being included in your compensation plan. You might pay dearly if you add random events or rates for the sake of it. A mistake can cost money and even jobs, so make sure to research and get professional help and opinions before making a decision.
6) Creating the same plans for different roles
As each role in a company has its own value, so should their work. For each position or area of the company, there are different traits and demands, as well as qualities and requirements to be measured. A perfect compensation plan should be designed to reward each of these different roles. This means there is no way to create a single plan for everybody because each role is different.
7) Using data that is not up to date
If you’re required to update your commission plan in real-time, why would you look into data that is not up to date? One of the biggest mistakes someone can make is expecting metrics and concepts that are outdated to work on modern workplaces. By not benchmarking updated, accurate data, you can miss out on opportunities, or even lose employees if they find better deals out there. There are plenty of ways to make sure you’re benchmarking updated data, such as using software or compensation reports that give you all the information you need.
8) Applying a flat rate on commission
Different achievements require different efforts, and so they should be compensated accordingly. While a flat-rate concept is not rare, it is definitely not fair. To begin with, this demotivates workers to go for bigger clients or deals, since all deals are equally compensated. Sales that are harder to gain take more time and energy than usual, so an employee should be paid for it properly.
9) Designing plans that are not aligned with company goals
A compensation plan is not just a requirement or a way to get people into your team. Since it is a way to compensate for certain efforts, a commission plan is a great tool to guide your team in the right direction. Depending on what your goals or needs are, your compensation plan is going to get your team interested and motivated to do what’s needed to reach it. If you don’t have a plan that is aligned with your company’s strategic goals, you’ll be leading your team in the wrong direction and a team’s efforts are only effective if they’re focused in the right place.
10) Adding too many commissionable events
Yes, you want your compensation plan to be attractive, competitive, and updated. However, the idea of “less is more” is valid when it comes to creating it. If you create too many commissionable events, you’ll be spending a great part of the budget into daily or mundane activities, making you burn through the budget really quickly. And not just that, but you’ll be overcomplicating the plan while also creating a culture of compensation for every task. Bonuses and incentives should be given for top performers, not for ordinary performances.
At the end of the day, your salespeople need to be satisfied in order to feel motivated, to perform better. The best way to ensure this is by valuing their work accordingly and in a fair way. Your commission plan is like your own pitch for someone to join and/or stay on the team, so it has to be just right.