4 Important Considerations When Creating a Sales Compensation Plan

4 Important Considerations When Creating a Sales Compensation Plan

Developing a compensation plan for employees such as those in sales is perhaps one of the trickiest to do, because it involves a behavioral balance. If you attempt to retain them through basic pay or remuneration for hours of work rendered, you are effectively not encouraging them to pound the pavement and run after sales opportunities.

On the other hand, if you reward them based on sales performance alone, this may lead them to become overactive and not focus on long-term, sustainable business strategies such as customer satisfaction and goal-oriented solutions. In general, a happy balance between the two scenarios is what many sales-oriented organizations strive for.

Depending on the industry your organization is in and on the type of sales force that you require, coming up with just the right sales compensation formula is key. Aside from careful business planning, there are many resources available today such as smart sales compensation management software that can greatly help you in implementing your plan smoothly.

Sales compensation plan

4 considerations when creating a sales compensation plan

So, what are the things to consider when creating an effective sales compensation plan?

1. Base pay

As mentioned, coming up with the ideal basic pay for your sales people is critical to keep them onboard. How can you go about this? A simple way to determine a good base pay is to check out competitors. The market usually dictates starting or retaining salaries for sales people, and it would be good to stick to this prevailing industry level so as not to cause your employees to jump ship or to become too complacent.

By carefully studying what other companies are giving within your industry, you’ll get an idea of what would make a prospective employee join your team and hopefully stay long enough to buy into your business goals and vision.

Base pay need not be pure compensation, but can be in the form of allowances or other benefits that can help the employee get started on his sales tasks. Some companies, for instance, provide meals, communication, or travel allowances so that their sales people can do their rounds and secure clients. Compensation can also be on a daily, weekly, or monthly basis.

2. Commissions

It would also be good to check out the commission structures of similar companies or products within your industry. There are commission systems whose percentage increases as total sales value increases, while there are systems where commission is a fixed percentage. The margin of commissions that you can offer to your sales people really depends on your bottomline and on your business model.

Take into consideration referrals made by other people to your sales force, or referrals from non-sales personnel of your company—these are overlooked opportunities for additional leads or sales. Some companies disregard referrals, which lead sales people to give out nominal fees or commissions out of their own pocket. These are practices that you need to investigate and consider carefully in your own organization, and be sure to institute proper rules or guidance regarding them.

Incentive and bonus

3. Incentives and bonuses

This is where creativity and competitiveness comes in among companies. Rewards for outstanding performance should be incentivized, or sales contests can be developed so that your sellers can be inspired or motivated to achieve more than their quota or what is expected of them.

Incentives and bonuses can also be non-monetary, so find out what kind of gifts or items excite your sales people. These can be as simple as vouchers for a spa treatment, gift certificates for shopping, the latest gadgets, or big-ticket items such as plane tickets or cars.

4. Automated management

Once you’ve drawn up a great compensation and incentive plan for your sales staff, the challenge is in implementing it smoothly and efficiently. Consider investing in a proper compensation management software in order to ensure that your sellers are given what is due to them correctly and on time. Such software solutions also help you gain a clearer overview of your entire sales operations, so that you can make real-time decisions regarding sales performance and behavior.


Software solutions require some cost and time investment in the beginning, but the payoff is rewarding in the long run as it helps you run your sales organization more effectively and thus, retain employees and grow your business better.

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