Compensation Plan

Posted in Marketing and Strategy Terms, Total Reads: 447
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Definition: Compensation Plan

Compensation plans are plans to award individuals for their efforts and to ensure that your employees stay with you and are satisfied over a longer period of time. A sales compensation plan intends to compensate the salespeople effectively. It is generally an incentive compensation plan that encourages the sales force to land new deals and to upsell to existing clients.


Determining the right balance between the base pay and commission is the major challenge as a well-designed plan helps create a sales culture of high performance which ensures personal as well as organizational growth in tandem. Recognizing and rewarding the performance of individuals creates an attractive environment for pulling and retaining top sales talent among the industry.


“Going to market is really a fundamental part of planning your business. The compensation plan is how you operationalize the sales force, get them aligned with the business goals, and get them motivated and driven to implement your go-to-market strategy” quoting Jin Stoeckmann, senior practice leader for sales compensation for WorldatWork


Generally companies have a written and documented sales compensation plan which is adapted and evolves as per the market conditions and competitive pressures. The sales compensation plan should be clear and distributed to the sales force in order to keep them motivated and goal oriented. The proper utilization of the plan lies in the hand of the line managers and the organizational hierarchies to get the best out of the sales force.


A sales compensation plan should include the following essential elements:

a) Strategy: The sales strategy and the business objective in order to set targets

b) Performance measures: Set benchmarks, performance measures and metrics to help the sales force and to determine the focus areas

c) Payout formula: Determining the fixed and the variable component in order to spell out the gains for the employees

d) Governance: Procedure to resolve questions and conflicts not covered in the plan and might arise at some later

 

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