In my last post, I listed two critical tasks for delivering an effective sales compensation plan. The first of these is easy-to-understand, meaningful spreadsheets and other documentation. In this post well discuss the central document of any plan the spreadsheet. Heres an example spreadsheet; the important elements are circled in red and identified by number, with discussion of each major area following:
(1) Identification and Personalization. At the risk stating of the obvious, a commission spreadsheet should always identify the company, the year, and the plan. Moreover, every person participating in the plan should have his or her own personalized spreadsheet even if every rep has the identical compensation structure, personalizing each persons plan is a gesture of respect. Note that all cells containing custom information are shaded in gray.
(2) All specific plan parameters. A well-designed plan should prominently specify all computation details. In this example, these are (a) the fact that the compensation basis is reported revenues, not bookings or collections, (b) the reps quota, and (c) the commission rates applicable at different levels of production.[Note that this example is of an accelerated plan, meaning that the commission rate increases with higher levels of achievement.]
(3) Scenario analysis. The first thing that most sales reps will want to know is their earning potential, and especially how much they will earn in the event of significant under- or overachievement. Including percentages of quota and of target compensation along with the raw dollar amounts helps provide context. In the above case, there is a modest penalty for underachievement commissions at 75% of quota are only 71% target commissions but overachievement is heavily rewarded. For example, a rep producing $4,000,000 in revenue or double the quota earns $330,500 in commissions, or 275% of target commissions much more than double the target.
(4) What-If. All sales reps want to know where they stand. Giving them a tool to figure that out easily without having to check in with the commission gurus in the bowels of the accounting department can help make the commission plan the motivational tool its always intended to be. You want sales reps to go through thought processes like, If I work this weekend instead of going camping, I might be able to increase the size of the deal by $45,000. I wonder how much more Ill earn if I do that. . . ? Or, How much do I need to sell to enable me to afford that Porsche?
In my next post, well move from the numbers part of the plan documentation to the words part.