Top five tips to engage your organisation’s sales force with a fairer commission structure

Sales incentive plans (also known as sales commission schemes) are among the most demanding of all reward programmes to design. The foremost reason is that you are only as good at designing a sales incentive plan as you are at understanding the sales cycle, the business commercials, the customer journey and routes to market. Secondary challenges include the reticence of sales professionals to allow HR to scrutinise their incentive arrangements, as well as shortcomings in the available data, which can be a barrier to effective analytics and insight.

Walking into a sales incentive plan design project with your eyes open to the challenges is an essential first step, while arriving equipped knowing the factors that contribute to success will enable you to hit the ground running.

There are five key contributors to the creation of a sales incentive plan. These need to be effectively balanced if the plan is to succeed for the business and be perceived as fair in the eyes of participants.

1. Market competitive

Perhaps more than any other group of employees, sales professionals are highly attuned to market norms. They are acutely aware of what competitor employers in the same industry or sector are paying their sales professionals or, worse, will come to the subject burdened with anecdotes about who is paying more. The ability of HR to provide compelling evidence-based arguments is pivotal to persuading sales professionals that projected earnings are fair, and to assure the business they will be able to recruit and retain talent at a given earnings level.

2. Territory allocation

One of the most common criticisms from sales professionals is that the allocation of territories is unfair. Some geographies, channels or customer groups will be easier to sell into than others. For example, if the sales territory is in an urban area and there is a high density of customers concentrated in a small geography, it will be easier to sell more and more efficiently, than someone in a rural area with fewer customers spread across a wide geographical area.

A simple consequence might be that an average to lower performer in an urban area receives much higher sales commission that a highly capable individual operating in a difficult geography. Identifying and mitigating this type of risk is vitally important in ensuring the plan feels fair.

3. Target setting

The ability of the organisation to set targets which are stretching yet achievable is another important contributor to perceived fairness. Target setting will usually be more difficult in a cyclical or volatile business or a new channel or start-up. Reliable target setting, or an equitable approach to revising targets in changed circumstances, will also underpin a stronger sense of fairness.

4. Design of the pay curve

Linked to target setting, the sales incentive plan designer needs to determine what level of performance is good enough to trigger some level of commission. This is the amount that should be paid for good results, and the maximum that is due for exceptional results, if indeed a cap on total earnings should apply. To be perceived as fair, earnings at threshold, target and the maximum level need to make sense and be evidenced by a normal distribution across the pay curve.

5. Visibility

The metrics (eg revenue) against which the sales professional is measured must be things the individual can impact, be capable of reliable measurement and easily tracked. If a sales professional cannot predict what they can earn in return for particular results the plan design is likely to be poorly received. The best plans enable people to model and track their commission earnings.

The author is Sarah Jefferys, senior consultant, total reward group, a Gallagher company.

This article is provided by Gallagher.