3 Key Tips for Designing a Sales Compensation Plan That Works

A “sales compensation plan” is a term commonly used to define the collection of benefits, incentives, and management practices in a company’s incentive plan. It is not meant to share individual sales and compensation details between business partners or stakeholders. Creating a sales compensation plan should be seen as an art form that considers employees’ needs, job responsibilities, and other factors such as company culture. Companies often change their sales compensation plan if it does not work.

1. Determine the Amount of Base Salary You’re Willing to Pay

Setting the right base salary and incentive pay mix for your sales compensation plan is essential. The right combination depends on a lot of factors. If you have large account sales and need more skilled salespeople, for example, a base salary might be more important to you than it would be if you sold primarily small item lines. If your company wants to attract top talent, it may need to offer higher base compensation. In particular, if your company wants to attract top performers, it may need to provide a significant base salary plus an incentive pay mix.

2. Determine the Appropriate Sales Incentive Pay Mix

It is also essential to design a sales compensation plan considering the pay mix between base salary and incentive pay. While some companies build their sales compensation plans on just base salary or just incentive pay, you should avoid doing this because it can lead to a sales employee’s failure or success depending mainly on economic conditions, which can make your company less competitive than its peers who offer both base salary and incentive pay. It’s important to review this plan every year so you can make the necessary adjustments.

3. Know How to Design a Payment Schedule for the Sales Incentive Pay

A sales incentive plan usually pays out commissions and bonuses over time using a time-series schedule. It is essential to write a sales incentive plan that shows how payments are made, so that plan participants know when they will receive their bonuses. While it is necessary to include this information, you must be careful not to have anything in the written plan that could let the competition know your exact payment schedule or commission rate. The payment schedule is often kept on the sales team members’ computers to ensure that this sensitive information remains safe from being seen by competitors.

Sales compensation is an essential element of marketing and sales, and it is crucial to determine the roles of salespeople—whether a salesman or a call center representative. It is also important to decide what an employee’s base salary will be and how much they can earn in commissions or other bonuses. You must also choose what commission structure you should use for your company’s sales compensation plan and whether the pay mix should consist of more base salary, incentive pay, or both. Lastly, it would help if you decided how to pay sales commissions by ensuring that the company’s plan stays competitive.