Thursday, February 21, 2008

The Most Important Aspect of a Compensation Plan

When I got staffed on my first incentive compensation management system integration project, I knew virtually nothing about that industry. As any good consultant would do, I started to read as much as I could on the topic. One thing I realized is that there are so many books out there talking about how to design plans, formulas, frameworks, etc... But most of these books spend so little time actually discussing how the plan will look like.

That's probably one of the main reason I come across so many plans that are not completely defined. When I say not "completely define", I mean that some of its elements are left to interpretation... As a result, the implementers go with that plan, ask countless questions wasting everybody's time during long meetings, trying to find out who the subject matter expert with a certain piece of knowledge is, only to find out that he or she is on vacation, etc. Alternatively, the consultants could "think" they understand the plan, implement it and later during testing, realize that the results are not those expected by the client... oops! And that often happens around the go-live date and, what-do-you-know, the deadlines are pushed back, the project goes over budget, people are unhappy.

Fortunately, there is one small book called Compensating the Sales Force - A Practical Guide to Designing Winning Sales Compensation Plans by David Cichelli. There is a lot of good info in this book - I will talk about some of it in the future - but in my opinion the best part is only found at the end in Appendix A: Illustrative Sales Compensation Plan. If only all comp plans could look like this!

But that's not all... The best part of Appendix A is its last few pages; Sales Compensation Plan and Calculation Examples. And THAT's what I call the most important aspect of a compensation plan (from an implementer's perspective).

Having a few DETAILED examples in the plan will ensure the implementers knows exactly what the plan does. It will remove any ambiguities, it will save time and be a quick "at a glance" reference. It will also help out in the planning of unit and system tests to cover all scenarios.

A good example will include all the assumptions, sample data/rates/periods/etc and result. If a plan has any exceptions or special calculations, examples for those should be included as well.

That's it! Please include examples for us :-)

1 comment: said...

I love this blog entry because I've read hundreds of plans and can count on one hand the number of them that were actually clear. While it is unfortunate for the implementer that the plans are ambiguous, the real tragedy is the impact on rep. All too often the individual may spend hours and even days trying to understand and beat a complicated plan. Usually lost productivity and unintended consequences are the real results of these plans.

The purpose of the plan is to communicate strategy through goals and leveraged incentives. One of the founding principles of Makana was help with this process. Makana Motivator steps the designer through the process of defining each element and presents an individualized earnings curve to clearly communicate how the individual will be rewarded for their attainment. I encourage you to take a look at our sample plan document as well.

Liz Cobb
Makana Solutions

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Ottawa, Ontario, Canada
Julien Dionne is a well-rounded consultant with global business management experience and outstanding technical, business and leadership skills. He earned a Bachelor of Applied Science in Software Engineering from the University of Ottawa, Canada, and he is a member of the Canadian Professional Sales Association. The views posted within this blog do not reflect the views of Julien’s current or previous employers and clients. Julien can be reached at