Meaning of Compensation: Employees work to earn money (wages or salary). A strong compensation plan should be aligned with company goals, simple to understand and communicate, and give sales reps and managers target objectives to work … In short, your compensation plan details how an individual rep or sales team is to be paid for achieving their sales goals, addressing base salary, commissions, and incentives, and then linking these monetary and non-cash rewards with sales performance. Copyright © 2021 The Cygnal Group, Inc. All rights reserved. You first have to identify exactly what your business objectives are. Correlating efforts and results with rewards is an ideal that most companies constantly seek yet seldom achieve. It guides and motivates the actions of … Updated on: December 12, 2019 Leave a Comment. Compensation can also be defined as follows: ADVERTISEMENTS: 1. Forms 4. Not finding your answer? Finally, a proper plan should help to keep desirable people. The compensation plan has a direct bearing on the successful implementation of the marketing plan. A sales compensation plan intends to compensate the salespeople effectively. Basically, there are eleven widely used methods of compensating a Salesforce: The various types of sales compensation plans are described below: 1. There are many different types of sales commission plans. Step two of the process provided key business objectives. A properly designed sales compensation plan fits a company’s special needs and problems, and from it flows attractive returns for both the company and its sales personnel. This is recommended only for sales people with very long sales cycles for whom effort and success in the current year will not yield financial results in that same year. 33 Qualities (Complete List), 13 Needs and Characteristics of Motivation Research, 15 Reasons for the Occurrence of Industrial Conflicts, How to Make a Successful Participative Management, 10 Basic Limitations of Workers Participation in Management. Compensation charter. ADVERTISEMENTS: Compensation: Meaning, System and Objectives of Compensation! Crafting a sales compensation plan that meets your company's business objectives, motivates sales reps and is easy to track and manage requires careful thought. Importance of Sales Compensation Leveraging targeted incentives within a sales force compensation plan creates a new level of value within your sales organization, allowing you to achieve results and encourage behaviors in a way that is tailored to individual roles within your organization. This money is broadly termed as compensation. To Ensure Proper Treatment of Customers, A seller’s ability to maintain strong, long-term relationships with customers depends on providing customer service that results in a, 9. Sales compensation is an output of the business planning process. Sales and growth goals are reached at low cost and profit is satisfactory. Your email address will not be published. To Correlate Efforts and Results with Rewards. It is occasionally necessary to base sales incentives on behavior- or activity-based objectives. 1. Sales compensation matters. Once this is understood, design elements can be used to build a plan that will … Good alignment means that each component of the sales compensation plan maps directly to a corporate objective and significantly increases the probability that it will be achieved. Plan design. It is the key to changing salespeople’s behavior. What is Collective Bargaining and Why it is Important to Workers? The sales compensation plan should be available and distributed to the sales force. The term compensation is used to indicate the employee’s gross earnings in the form of financial rewards and benefits. Length & Complexity of Your Sales Cycle Sales reps who are selling a product or service with a long sales cycle (think large enterprise accounts with high barriers to entry) require a compensation plan with a strong focus on the base salary and less of a focus on the variable or commission payout. Start by gaining an understanding of the impact compensation will have on rep motivation. eval(ez_write_tag([[580,400],'googlesir_com-medrectangle-3','ezslot_3',105,'0','0']));There are three motivational roles of sales compensation plan in this way: In brief, sales compensation plans are aids to, rather than subsidies substitutes for, effective motivation. The front line manager should use it as a tool to communicate the sales strategy and … Most sales objectives are set at the start of the year to create a 12-month road map. The key to receiving rewards in most cases is getting results, that is performance or productivity. Compensation plan is the most widely used method of motivating a sales force. A good pay plan helps a company build the quality of its Salesforce. For example, it could recommend that a rep who sells more of a particular product or adds a particular service could make enough money to make it highly attractive to push these offerings. Related: 15 Key Benefits of Sales Training or Coaching (Explained). A well-designed sales compensation plan articulates corporate priorities for salespeople. A tool that is used to foster […] Sales people are more likely to perform activities which support the corporate objectives when their compensation plans are in alignment. For example, one company might offer a low base salary in combination with a hefty commission package, while another may provide a mix of a medium-sized salary, competitive targets and career growth opportunities. There are three motivational roles of sales compensation plan in this way: A seller’s ability to maintain strong, long-term relationships with customers depends on providing customer service that results in a high level of customer satisfaction. The outcome from this step is to establish the primary driver(s) for the sales compensation plan, also known as targets, assignment, objectives or quotas. good compensation prevents job dissatisfaction of salesmen. It is generally an incentive compensation plan that encourages the sales force to land new deals and to upsell to existing clients. Related: 17 Key Features of an Ideal Compensation Plan (Explained). The Importance of the sales compensation plan can be described under the following points: The sales compensation plan is an essential part of the total program for motivating sales personnel. It is defined within the context of business strategy and directly supports the achievement of corporate objectives. How sales compensation plans are built. 1. They reward the salesperson for meeting or exceeding goals, but they also provide a safety net when conditions make it more challenging to close sales. Sales planning is an important function in the procedure of sales management process, a method that involves sales forecasting, ... but the usual section in a sales plan are the following: sales objectives, resources, market analysis, product range, activity analysis, training plan, resource requirements, and sales strategy analysis. Notify me of follow-up comments by email. The best sales compensation plans are strategically aligned with the organization’s objectives. A good sales compensation plan should help the sales manager to control the sales force by controlling their work hour commitments and call realization in the organization. It provides a mechanism for demonstrating the congruency between attaining company goals and individual objectives. Still, according to a recent study we conducted of 33 companies, 40 percent used objectives based pay for a few of their plans, with 18 percent using them exclusively. For example, if a company's current goal is to increase market share, the compensation plan should be weighted to pay more to salespeople who successfully take customers away from the company's competitors. But, just because sales objectives are set doesn’t mean they can’t, and shouldn’t, be changed. Top 10 Need & Importance of Workers Participation in Management. Sales compensation plans vary depending on team structure, budget and goals. It is the reward they want from management in return for services rendered to the organisation. Features. A close relationship exists between a company’s strategic marketing planning and its Salesforce compensation plan. It adjusts pay levels to performance. Companies will be increasingly competing on the basis of customer service. This component connects overall business objectives to sales compensation to ensure alignment. It relates to job performance and rewards. Depending on the company you work for, the industry, and what you are selling, how you get paid can vary significantly. Importance and Objectives of Sales Compensation Plan. A system of rewards that can motivate the employees to perform. Required fields are marked *. Ask your own question below! Types of Sales Compensation Plans. The sales industry is unique in the way professionals are compensated. Work with executive stakeholders to understand the business’s strategic goals so you can design a plan that focuses on measuring and incentivizing performance that will actually support those objectives. At the end of the performance period, evaluation of sales person performance should be straight-forward and objective so that any three people who understand the business and the objectives would easily agree as to whether the sales person had: (1) failed to meet the threshold, (2) exceeded the threshold but had not met the goal, (3) had met the goal but not the excellence level of performance, or (4) had met or exceeded excellence. Achieving the perfect balance among all of these goals can be difficult, which is shy you must carefully follow these steps to optimize your sales compensation plan. A strong understanding of company objectives is mandatory to a successful plan. Your objectives should be revisited each quarter or month to make sure they remain achievable. The sales compensation plan is an essential part of the total program for motivating sales personnel. Helps Align Plan with Objectives or Job Content Enhances Motivational Impact of Plan or Retention Lowers Cost or Reduces Administrative Workload ; Eligibility: Which roles should be on a sales plan vs. another plan Pay levels. It should also assist in attracting high-caliber salesman. Over 50 percent of these companies expressed dissatisfaction with the process of setting and measuring the objectives. It also shows that the natural Desire of salespeople to earn more money if left unabated could conflict with the firm’s need to control expenses. A salary is a direct monetary reward paid for performing certain duties over a … ADVERTISEMENTS: A comprehensive sales compensation programme should be economical to the company, failing which the cost of sales and customer service will go higher and the salespeople will enjoy at the cost of the … Straight Salary Plan. For eg. Once you have your plan, how can you sell it to your employees effectively and avoid unwanted reactions? A limited number of specific objectives should be assigned to each person so that the plan is easy to understand and administer, and so that sales people have a clear understanding of what is expected, and what they will earn based on what they do. It’s a thin but vital long distance line that keeps the daily connection between corporate growth and the rep on the street. To get salespeople to aid in successfully implementing the company’s strategic marketing plan, management needs to co-ordinate its sales compensation plans with the company’s goals. It needs to incentivize specific behaviors and actions that suit the needs of both the company and the customer. A good compensation plan is one that motivates salespeople to treat customers properly, thus providing customer satisfaction. The foundation of the sales compensation plan will be dependent on several factors, such as assembling a planning team, prioritizing what your business is trying to achieve, defining the roles and responsibilities of your salespeople, and accounting for selling approach and sales cycle. There should be some level of performance below which no incentive is earned (threshold performance), some level at which the target incentive is earned (at-goal performance), and a higher level at which some upside is offered (excellence performance). Companies usually customize their sales plans as per their unique needs, financial status, and level of growth. It retains field salespeople. “Going to market is really a fundamental part of planning your business. Approximately 80% of our projects would fall into this category. Thus, in poor years lower sales are offset to some extent by lower commission payments, and in good years increased sales costs are financed by higher sales revenue. As the company's goal changes, so should the compensation plan. Flexible objectives in a sales compensation plan. Your email address will not be published. In essence, they need steady pay because the sales cycle is so long. In the … It is possible to design compensation plan schemes which Allow selling costs to fluctuate in line with changes in sales revenue. To maintain profitability a sales manager must design compensation plans that encourage salespeople to work efficiently. Build a Compensation Planning Team. With a sound sales compensation plan in place and absent significant environmental change, it will often need only a tweak as opposed to a major overhaul. When sales personnel receive high pay as a reward, it improves the job performance of a salesman. Aligning sales compensation plans with corporate objectives is a critical step towards ensuring the financial health of your company. Related: Top 7 Powerful Techniques of Inventory Control for Stock Management. This is the most challenging step of the process. The Importance of the sales compensation plan can be described under the following points: 1. The split between fixed and variable pay Performance measure definitions and weights. Enter your email below to get access to Our All helpful Tips and Articles, importance and objectives of sales compensation plan, Importance and Objectives of Sales Compensation Plan. To maintain profitability a sales manager must design compensation plans that encourage salespeople to work efficiently.eval(ez_write_tag([[250,250],'googlesir_com-leader-3','ezslot_10',109,'0','0']));eval(ez_write_tag([[250,250],'googlesir_com-leader-3','ezslot_11',109,'0','1'])); The compensation plans must be custom designed to not only meet the goals of individual firms but also provide competitive compensation packages to the Marketplace. Enter your email address below to receive an email whenever a new sales comp tip is posted. Motivational Role. The objectives need to be stated in a way that provides for different levels of payout since pay at risk and upside both matter to creating good motivation. Related: 21 Benefits and Limitations of Personal Selling (Explain with Examples). Great sales compensation plans need to accomplish quite a lot… It needs to provide fair compensation to employees in customer-facing roles. eval(ez_write_tag([[250,250],'googlesir_com-medrectangle-4','ezslot_0',101,'0','0']));eval(ez_write_tag([[250,250],'googlesir_com-medrectangle-4','ezslot_1',101,'0','1']));When sales personnel receive high pay as a reward, it improves the job performance of a salesman. Also, Esprit de Corps is high. Thus, now you know the importance and objectives of sales compensation plan. A close relationship exists between a company’s strategic marketing planning and its, The compensation plan has a direct bearing on the, To get salespeople to aid in successfully implementing the company’s strategic marketing plan, management needs to co-ordinate its, 6. 8. To Attract and Keep Competent Salespeople, A good pay plan helps a company build the. However, in order to best align … Sales compensation plans should match up with one or more company objectives. 11 Advantages of Proper Selection Process (With Examples).eval(ez_write_tag([[250,250],'googlesir_com-leader-2','ezslot_8',107,'0','0']));eval(ez_write_tag([[250,250],'googlesir_com-leader-2','ezslot_9',107,'0','1'])); A good pay plan acts as an unseen supervisor of a Sales-force by enabling management to control and direct the sales men’s activities. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. Precisely how to … 17 Key Features of an Ideal Compensation Plan (Explained), 15 Key Benefits of Sales Training or Coaching (Explained), 11 Advantages of Proper Selection Process (With Examples), 21 Benefits and Limitations of Personal Selling (Explain with Examples), Top 7 Powerful Techniques of Inventory Control for Stock Management, 10 Main Types of Salesman for Selling Products (Explained), How to Become a Successful Salesman? Correlating efforts and results with rewards is an ideal that most companies constantly seek yet seldom achieve. Along with baseline company benefits, an effective sales compensation plan can provide balance between financial needs and desires. Different types of sales compensation plans are adopted by companies to encourage ideal behavior among the members of their sales team. Factors 5. 2. One of the secrets of achieving this is to create a sales compensation plan that will literary attract the best salesmen and women in the market. Donya Rose, CSCP,  is Managing Principal of The Cygnal Group. Prosperio Group’s core service offering involves assessing, developing, testing and communicating sales compensation plans (commissions, goal-based bonuses, etc). You should evaluate the need to change the plan on an annual basis. Objectives of Paying Compensation 3. This is recommended only for sales people with very long sales cycles for whom effort and success in the current year will not yield financial results in that same year. The sales compensation plan is one of the most significant drivers of performance in the sales organisation and represents one of the single largest expenses a company will incur, commonly tens or hundreds of millions of dollars. Sales compensation is one of the key factors in motivating salespersons to achieve the sales and profits objectives of the firm. eval(ez_write_tag([[250,250],'googlesir_com-large-mobile-banner-1','ezslot_6',124,'0','0']));It is possible to design compensation plan schemes which Allow selling costs to fluctuate in line with changes in sales revenue. Total cash compensation at target for each role Pay mix. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices. AI-based tools also can provide prescriptive recommendations for individual sales reps based on compensation plan components that are are key to delivering the company’s objectives. The best results are achieved with flexible objectives when the following conditions are met: Then when it is time to assess performance and deliver the payment, an assessment table and calculation method like that shown below works well: Well-crafted objectives like those shown above provide clear guidance and link pay to performance over a range of possibilities. Sales compensation can be included in basic salary, bonuses, incentives, or commissions. Sales Objectives. It is occasionally necessary to base sales incentives on behavior- or activity-based objectives. Compensation or paying employees for their work is an important responsibility of human resource … eval(ez_write_tag([[300,250],'googlesir_com-large-mobile-banner-2','ezslot_7',123,'0','0']));Today, this usually means motivating the salesman to ensure a fully balanced selling effort, that is, a total selling job. 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Make sure they remain achievable between a company ’ s strategic marketing planning and its Salesforce plan! Pay performance measure definitions and weights are three motivational roles of sales Training or Coaching ( Explained ) approximately %... Organization ’ s gross earnings in the form of financial rewards and benefits an effective sales plan. Between fixed and variable pay performance measure definitions and weights level of growth it your. Supports the achievement of corporate objectives bonuses, incentives, or commissions know Importance! Have your plan, how you get paid can vary significantly properly, thus providing customer.! Process provided key business objectives are sales commission plans plans as per their unique,... Or productivity the quality of its Salesforce compensation plan can be described under the following points 1!