For companies with December 31 fiscal (and comp plan) years, its time to start thinking about next years incentive compensation plans. For September 30 companies that haven’t gotten to that task yet, its really time to get started!

This is a lot of work, to be sure, but its critically important for high-growth companies to get their incentive plans just right. A lot of people think the challenging tasks are:

(a) setting the target compensation amounts for all the participants, and

(b) developing the compensation algorithms.

If you’ve accomplished those two tasks, you’ll have an effective, successful compensation scheme, right? WRONG! Not only are they the easy part of the whole effort, but even when you do a great job on them, if you stop there, all that hard work will have no value to your company.

There are two really important tasks that a lot of companies just never get quite right. For incentive compensation to be successful, you also have to deliver:

  • Easy-to-understand, meaningful spreadsheets and other documentation.

Designing a great comp plan only has value if the sales force knows how it works and why it works.

  • A live, in-person presentation by senior management.

Its essential that the sales force see that the comp plan is an important element of the company’s strategy, and that senior management was involved in the process and buys in.These tasks are time-consuming and unglamorous, especially the first time or two around, but well worth the trouble. In the next two posts, Ill talk about each of these tasks in more detail.

And, one more piece of advice: No matter when you get your comp plans done, never, ever, ever announce them to the sales force until after the current fiscal year has ended.

The last thing you want is a smart salesperson and the good ones are always smart! figuring out that he or she can make more money by letting a big deal slip over into the next year. That cant happen if the sales force doesn’t know what next years plan is going to be.

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