Sales Compensation and Expense Allowances

TEST THE PLAN

After you have created a sales compensation plan, you will need to evaluate it to make sure it:

• drives the right behavior and results
• meets management requirements
• is cost effective
• attracts, retains, and motivates a quality sales force

Model the impact of the new plan and conduct an associated cost-benefit analysis. Ideally, this should be done with historical data, growth assumptions and other relevant financial planning assumptions. Thoroughly test the plan to find out if targets are achievable and if they will help or hurt the organization's bottom line. It is also appropriate to test maximum payouts for top sales performers as part of the cost-benefit analysis. Is the threshold or minimum payout set appropriately for the desired sales result? What are the total costs from the prior year and prior plan to the new plan?

Feedback from sales management is extremely valuable as they are able to see strengths and weaknesses in a plan due to their knowledge of the business.

After you have "debugged" the plan and know that it will work, obtain feedback from a sample of the sales force. Doing so will increase the plans effectiveness. It is critical that the sales team understands the plan.

Next, you must make sure the plan supports your company's ability to attract, retain, and motivate a quality sales force. You will need to assess whether your company's pay is competitive in the general labor market. Pay too much and you'll hurt the company's bottom line. Pay too little and you'll lose top talent to the competition.

OBTAIN MANAGEMENT APPROVAL

Once the plan has been finalized, top management will typically approve the plan. Normally, the management approval document will include:

• management summary
• total costs
• cost-benefit analysis and examples
• plan document
• timeline for implementation