Sales and Marketing Compensation

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Corporate Veil
Employee Stock Ownership Plan (ESOP)
Intrinsic Value- Stock Options
Golden Parachute
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Sales and Marketing Compensation

Compensating sales and marketing employees is a critical, and complicated, issue for many companies. Sales incentives are very common today and many companies experience mixed success with these programs. Incentives work best when they are integrated into well-established performance management processes. These plans require careful design, excellent administration, and constant communication.

Some Important Best Practices For Sales Incentives

1. Understand Your Customer and Sales Model

It is important to develop incentives that support your sales models. Do you rely on deep, long-term relationships? Or does your company sell products to a mass or retail market? Each model requires different features and your incentive plan should reinforce the primary sales model.

2. Determine Program Objectives

What are the two or three things that you really want to accomplish with sales incentives? Are you trying to increase market-share? Revenues? Asset growth? These questions are critical, as they become the foundation and guideposts for the program.

3. Work Hard On The Underlying Analytics

Make sure that you really know how increasing sales will translate into profit. This new profit should fund the incentives that you will pay to your sales staff. You may be willing to pay a higher percentage of “new money” in the beginning, but make sure you are not paying for sales or revenues that you already generate!

4. Keep It Simple

It is important to keep your plan as simple and transparent as possible. Select a few critical sales criteria (new accounts, revenues, net deposits) and resist the urge to include everything good. Pick the high impact outcomes that can be measured consistently. Too many variables lead to confusion and administrative headaches.

5. Establish Goals and Targets With Each Employee

It is very important for managers to meet with employees and set relevant, measurable goals. There should not be any mystery about what is expected. You should have minimum, target, and stretch objectives—with different levels of rewards for each level of performance.

6. Pay Sooner Than Later

Incentive payments should be linked as close in time to performance as possible. If you have quarterly goals, then you need to pay bonuses within 30 days of quarter end to drive home the connection between performance and rewards. If you measure performance over a longer time such as one year, get the payments out on a predictable date each year.

7. Coach for Performance

Make sure that your managers provide continuous feedback during the process. They should track each employee’s progress toward their goals and talk to their employees on a regular basis. There should be no surprises (or excuses) when it is time to pay bonuses.

8. Deliver What You Promise

A common problem in sales and incentive programs is that management fails to follow through, either in administration, timing, or even size of payouts. These programs require a serious commitment and sufficient support to execute. Furthermore, you will lose credibility quickly if you do not follow through on your end.

A Few Tips About Sales Incentives

Make sure the new behaviors that you are encouraging are consistent with your company’s values. Consider using a consultant to help you develop a new incentive plan. Mistakes are costly and very common. Don’t confuse incentive plans with good management or training. Pay programs are not a remedy for performance problems.

External Resources

World At Work. Formerly the American Compensation Association with information on compensation products, services, and research. world at work
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