In a BLR webinar entitled "Sales Compensation Strategies: How to Motivate and Re-Energize Your Sales Staff in a Challenging Economy," Dan Kleinman, principal of California-based Dan Kleinman Consulting, explained that when developing a sales compensation strategy, one of the best ways to optimize costs and process is to appreciate your parameters, e.g.:
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- Ability to fund
- Pay philosophy
- Cost of sales
- Margins and economies of scale
- Nature of the business and cash flow
- Tenure of the sales staff
Keep your total cash compensation competitive, but keep your mix your own. Beware of institutionalized costs and beware of perceived entitlements.
To "pay at risk" means:
- Performance below the threshold is risky.
- Performance at the threshold may provide less than the market remuneration.
- Performance beyond the target has a substantial upside pay potential.
Compensation costs need to discriminate on the basis of results. There has to be meaningful differentiation between top and bottom performers. A distribution example might be:
- 20% of the population are out of the money.
- 20% achieve threshold goals.
- 45% meet target goals or slightly above.
- 10% exceed the target substantially.
- 5% are rainmakers.
Remember that administrative processes have to be workable:
- Clear
- Accurate
- Timely
- Comprehensive
Never create a plan you can't successfully administer and always beware of a department on payouts.
Dan Kleinman is the principal of Dan Kleinman Consulting (www. dankleinmanconsulting.com), a California-based compensation and human resource consulting firm. For the past 18 years, he has served as an independent consultant for a broad spectrum of regional, national, and international companies, providing compensation, performance, organizational planning, and reward-system design services. His last assignment was serving as vice president and manager of compensation, benefits, human resources information systems, and payroll for Charles Schwab.
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