What Your CEO Needs to Know About Sales Compensation summary

Fostering an effective sales compensation plan isn’t just about throwing money at your sales reps. It’s certainly important to reward good sellers, but first you have to determine what kind of selling you’re doing and make sure you have the right sellers for the job.

You can use three kinds of selling:

As you might’ve guessed, the three kinds of selling are different in other ways too. They also necessitate different kinds of compensation rates to incentivize the sellers into behaving the right way.

A sales rep’s income isn’t fixed. Instead, it’s determined by their target total compensation: the sum of their base salary and their target incentive. The ratio between these two figures is called a pay mix.

So, reps need to be incentivized to perform well, but what does that actually mean? It can be quite difficult to define what “good performance” really is.

First, you have to define your success metrics. Don’t forget that your sales strategy needs to align with the company’s overall strategy.

So “good performance” has a number of definitions, depending on the situation. But even if you figure out the perfect measurement system, a big question remains: when is good good enough?

This is what you have to ask when you determine your reps’ quota – the amount of sales they’re required to make as part of their compensation plan. Quota setting is very important, but it can also be quite demotivating.

Sales compensation plans are clearly complicated. So who exactly should design them? The CEO? The sales compensation team?

A good CEO knows how to delegate her power. Too much CEO-level involvement in the design and implementation of the sales compensation plan can be unhealthy. Usually the sales compensation team calls most of the shots themselves.

How do you go about implementing your sales compensation plan? You’ll need to have some good sales managers in place. They’re an absolutely essential part of a strong sales team.

Good sales managers need to be highly skilled. The team can’t thrive and enjoy success without them. They guide the reps and make sure everyone hits their quota. More importantly, they serve as a link between the executive level and the sales reps working on the front line. Sales managers also have to be on top of any changes that occur, so they can translate effectively between the departments.

So now you have a strong compensation plan and a good manager to back it up. What’s next?

Well, even the best plan is useless if your sales reps don’t understand it. Naturally, the reps may feel uneasy with it at first. People are scared of change, especially when it affects the way they’re compensated for their work.