So, what exactly is involved in a sales compensation plan? This slide describes the process used to develop a sales compensation plan. Let's take each step and discuss. The first step is to review the job description. Doesn't this sound familiar? In the last course, we talked about how important a job description is. Here's another use for that job description. A well written job description is an important input into a compensation plan. The job description outlines the responsibilities and tasks assigned to a salesperson. A compensation plan needs to be aligned with the job description. So to illustrate. Let's suppose a compensation plan is 100 percent commission based and the commission is paid to sales to new clients. However, imagine the accompanying job description lists all kinds of other non-selling activities, such as client training as part of the job. Do you see the disconnect? Your compensation plan only recognizes just one aspect of the job. Good luck getting the salespeople to focus on those non-selling activities because those activities are not rewarded. The next step is deciding on the objectives of the compensation plan. The objectives should be goals that tie back to the job description. Some examples might be to increase sales by 20 percent or to gain 10 new accounts. Some other examples might be softer goals, such as to increase customer satisfaction by five percent. Whatever your objective is, it is important that the objectives be things that a salesperson can control and also that can be measured. But note, most sales accomplishments are only partially under the control of a salesperson. For example, company-pricing policies may severely limit a salesperson's ability to sell a product. So, recognize the above points are not absolutes, but a manager should try to use those things that a salesperson has the bulk of control over. These metrics create the standards to which performance would be measured. After establishing the objectives, the next step is setting the overall level of compensation. That is, what will the average salesperson earn over a given period? There is no set standard for salesperson compensation, and compensation tends to be a function of industry as well as job location. One source of information is the US Government Bureau of Labor Statistics, and there's an assignment coming up that uses that information. Next is setting the overall compensation. The method of compensation is very important. That is, how will salesperson be paid? The options can be summarized into two broad categories, salary and incentive compensation. The fifth step is setting indirect compensation. While much time and effort is spent on monetary compensation, another source of compensation is indirect compensation. These are items that can have the same effect as money but are not paid to the employee directly. These things include insurance vacation and profit sharing. Often, these indirect benefits can amount to 20 percent of a person's total compensation and help make a sales job more attractive. The last step is pretesting and executing the plan. Most compensation plans are pretested. That means taking a proposed plan and seeing how it would have operated as if it were in effect over the last few years. This is like a simulation exercise, and is useful in seeing the effect of a compensation plan on company results as well as on the bottom line. Implementing a compensation plan should be done very carefully. Remember, nothing is as sacred as a person's compensation, and any new plan is bound to be viewed with suspicion and distrust. That is why smart companies get salespeople involved early on, seeking input and feedback. Sometimes a new plan is phased in over a period of time, giving a sales force time to adjust.
