Sales Compensation Systems

A question we get all the time is "how should we compensate our sales people."  Those asking fit into one of two categories.

1. They are hiring their first sales people and have no experience with incentive based sales compensation systems
2. They are frustrated with the production in general of their sales staff and they want to see if a tweak in their sales compensation system will make the difference.

There are a ton of ways to go about it and no one way is best.  However, there are some things to keep in mind when creating an incentive compensation system. 

For this post, I consulted with my father Ed Garrison.  He has been consulting for three decades with senior leaders in the financial services industry and has seen more convoluted sales compensation systems than most people alive today.

Here are a few of the things he would tell you.

1. Keep it simple.  If the salesperson has a difficult time understanding what they have to do to reach their personal goals, it can be demotivating.
2. Make sure that you understand what you want your sales people to do before you create incentives.  If not done carefully, people may behave in ways that you did not foresee.
3. You can't motivate lazy or undisciplined sales people by offering higher commission.  It only increases your cost of carrying a poor performer.
4. You can't increase performance of a poorly trained sales person by offering higher commission.  Spend the money on training instead.
5. You can't get a sustained increase in sales of a poor product or service by increasing commission.  Spend the money to improve the product or service value.
6. Sales people are not purely motivated by the commission.  They are also motivated by things like serving their clients and recognition for their accomplishments.
7. When hiring, it is generally better to decide upon your compensation structure before beginning to interview.  If you get very excited about a prospective job candidate, you may be too generous with compensation.
8. Don't cut commissions unless you can afford to lose your best salespeople.

What is your experience with good and bad systems?  What pieces of advice would you add to the list?

Photo on flickr by mysavingtips

 

Comments

[Margarita Roberts]

A very well-written and helpful article! Awarding sales compensation is a lot easier when you are able to keep accurate records for each member of the team and present it easily. I'd recommend keeping track of sales in this easy to use template: http://www.oneclickstatements.com/commission-statements.html

Rita R.

[Jenny S.]

Great article! Thanks for posting it!

Jenny S.
sales compensation