The Four Pillars of Sales Compensation Plan Design
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A well-designed sales comp plan can unlock your team's full potential, increase productivity, and drive sales.
On the flip side, a poorly structured plan can demotivate your salesforce and negatively impact your bottom line.
While there's no one-size-fits-all solution, tailoring an effective plan for your organization is achievable.
On our latest podcast, we asked John Waldron, CSCP , Director of Total Rewards at PepsiCo, his thoughts on sales compensation design.
He shared four key pillars for designing effective plans, his pet peeves, and the biggest challenges he faces.
The Four Pillars of Sales Compensation Design
According to John, compensation plans should be:
1. Strategic
Firstly, a strategic sales compensation plan is essential for aligning the efforts of the sales force with the overall business strategy. By tying comp to strategic objectives, such as revenue targets, market share growth, or customer retention, companies can guide their sales teams towards activities that contribute most to the organization’s success. This strategic alignment not only motivates the sales force but also helps in achieving long-term business goals.
2. Compelling
Compelling comp structures are pivotal for attracting and retaining top-performing reps. A well-designed plan should offer competitive and enticing rewards that go beyond just monetary incentives. Recognition, bonuses, and non-monetary perks can contribute to a compelling compensation package, creating a sense of value and appreciation for the sales team. This, in turn, enhances job satisfaction and encourages individuals to put forth their best efforts.
3. Simple
Simplicity in sales compensation design is equally important, as complex plans can lead to confusion and frustration among sales reps. A clear and simple structure ensures that individuals can easily understand how their efforts translate into rewards. A simplified design also facilitates effective communication, making it easier for salespeople to focus on their core responsibilities without getting bogged down by intricate compensation details.
4. Fair
Lastly, fairness in sales compensation is essential for maintaining a positive and collaborative team dynamic. A fair plan ensures that all sales team members believe they have an equal opportunity to earn rewards based on their performance. This transparency builds trust within the team and fosters a healthy work environment, driving individuals to improve their skills and contribute to collective success.
Designing Effective Sales Compensation Plans
John told us successful comp plans optimize for these four pillars, striking a balance rather than over-indexing on one.
And his pet peeve?
As someone who worked in sales and now manages strategies for over 210,000 associates worldwide, John's pet peeve is when people get too analytical with comp planning, forgetting to factor in the human aspect of the end users. In this case, they’re over-indexing on strategy and neglecting the other essential pillars.
Conversely, what often happens is people over-index on simplicity. For example, setting quotas by dividing your goal by your number of sales reps.
But this doesn’t factor in the different selling motions that result from different geographies, territories, or product types, leading to unfair outcomes.
It’s easy to create a simple comp plan. It’s hard to make a fair, strategic, and compelling comp plan simple. 💡
So, it's fitting that John's biggest challenge in plan design is investing the time needed to consider all variables and finding the right balance among the four pillars.
It's challenging, but the payoff is worth it.
Catch up on Season 2! 🎧
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Click here to view a full list of sales comp job opportunities.
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Before you go...
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Our platform is the world's first sales compensation solution driven by a collective data model. It allows organizations to design, execute, and optimize their sales comp strategy.
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