Often Overlooked: Day-to-Day Impact of a Sales Compensation Plan

Often Overlooked: Day-to-Day Impact of a Sales Compensation Plan

Today much of the emphasis on sales compensation planning focuses on the behavioral versus the operational side to impact organizational performance. Searching Google for sales compensation consultants will return 1.3 million search hits. It seems there are plenty of consultants and experts who can help you craft the right compensation plan for your company. However, there is another aspect of a sales compensation plan that is often overlooked or not fully addressed, the day-to-day implications of calculating, tracking and reporting commissions as part of a sales compensation process.

This typical scenario occurs every month or pay period in many organizations. A mid-sized company (less than 100 employees) sells credit card processing and point of sale devices to merchants and store front owners. On a daily basis a funding report by a third party is sent to the finance department. The data in an Excel spreadsheet is uploaded into the customer tracking system and used to calculate commissions on each deal. Jumping to the end of the month we need to process all the deals for accounts payable and payment processing including sales commissions. The operations and/or finance team has to create a payment report which goes through a management approval process. A significant part of the payment process is the calculating, tracking and reporting of sales commissions in detail. It's not uncommon to have someone in a company spend several days at the end of the month processing sales commissions and creating commission statements.

So, what does the above scenario have to do with creating a sales compensation plan? The short answer is plenty. When creating a sales compensation plan which consists of items like quota targets, base commission rates, accelerators and commission splits you need to understand how changes in the plan affect your operations. Let's take the example above. You decide to pay commissions every two weeks versus once a month to better track your sales team's progress. Now the workload for your finance team of creating commission statements and processing payments has doubled.

In talking with companies creating or revising their sales compensation plans I highlight three points of consideration in their day-to-day operations. 1) Understand your company's workflow' which means really understanding the sequence of connected steps your company goes through from a closed order to sales commission payments. 2) Understand the use of technology in your company's workflow. Know where and how data is used in your company in calculating, tracking and reporting sales commissions. 3) Understand that timely commission statements and payments are just as important as having the sales organization understand their commission plan.

Understanding the impact of decisions regarding the payment of sales commissions by those who actually prepare and distribute this information can help avoid the peril of unintended consequences. Properly motivating a sales team is of primary importance to any organization, however slowing the organization with a poorly thought out process or inadequate tools can lead to late payments and a frustrated sales force. Take the time to plan your process for minimal friction points and find software tools that can help speed the end result, a satisfied and motivated sales team!

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