Many sales compensation practitioners are overwhelmed by the number of distinct sales compensation plans that they must support. Their concern is justified, and the number of compensation plans may get the attention of sales executives, HR business partners, and sales operations leaders.
Sales executives and HR business partners should be aware that using many different compensation plans across the same role will raise questions about pay parity and fairness. If you do not have a defensible answer, the organization may be taking an unnecessary risk (i.e. litigation, attrition, etc.).
Sales Operations leaders should also be aware that there is an expense to supporting a sales compensation plan. As the number of plans goes up, so does the cost (and time pressures).
To effectively create or manage a sales compensation plan, practitioners must collaborate with sales leaders, perform expense modeling, document plans for signoff, review new plans with Legal, and configure plan designs into their commission platform. If you want to measure the cost of each plan design, you can simply calculate the hours per function with the hourly costs of the employees (or consultants) performing the function.
So how did we get here? There are many reasons why sales compensation plans proliferate across an organization. Some are good reasons – launch a new product line, acquire another company or expand into a new country. Some causes are less good. Three addressable reasons why the number of sales compensations increase include:
- Lack of sales compensation governance – it is simply too easy to request a new plan design and many practitioners are not enabled to provide push back.
- Lack of collaboration – incentives are supposed to support the sales strategy. Collaboration between compensation plan designers and sales leaders must occur regularly throughout the year.
- Rigid back-office systems and administration – a good commission platform will allow you to modularize your compensation plan designs. As your systems improve, your time to support new plans designs should decrease.
For many large enterprises, a higher number of sales compensation plans will exist. It is just part of doing business with a complex and global sales force. However, you should be aware of:
- How many sales compensation plans exist for the same sales role?
- How many sales compensation plans have been created for only one person?
Ignorance isn’t bliss and you should take action. If you are a sales executive, HR business partner or sales operations leader, you should be asking these questions. If you are a sales compensation practitioner, you should catalog your sales compensation plans so you can easily answer these questions and see the differences between each plan.
Addressing these issues will help you manage risk, reduce expenses and improve operational bandwidth.