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AUGUST 2013



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Sales Compensation: The Perplexing Topic Explained
by David Cichelli

"Perplexing."

That's how most market leaders describe sales compensation. Whether you are a sales executive responsible for hundreds of sales professionals, or you are the CEO of your company managing a sales force of three to six sales professionals, the challenge to find the right incentive plan never seems to end. Frankly, there are so many configurations and applications that even after quizzing your most trusted industry advisors and peers, there is seldom a standard answer to the question, "What is the best way to keep my sales professionals motivated and consistent with the company's objectives?"

Perhaps you are among the rare few who have found the right incentive solution that is both meeting the needs of the company and the needs of your sales professionals. The pay plan seldom changes and the complaints from the sales staff and the chief financial officer are minimal. If you are in this rare group: Congratulations! You don't need to read any further. However, if you are among the majority of market leaders sorting through the many sales compensation issues, a path for solving this perplexing management tool awaits you.

What is Sales Compensation?
The short answer: Sales compensation is additional variable pay for sales performance. On the surface, it suggests that sales personnel should receive incentive pay for producing sales results. Why make it any more complex than that? When examined more closely, sales compensation reveals itself to be much more than a simple pay-for-performance transaction system. Consider the follow-ing list of objectives:

  • The pay plan must attract and retain the right sales talent.
  • The incentive needs to motivate incremental sales efforts.
  • The pay program must reward the company's business objectives.
  • Incentive pay attributes should be consistent with the company's management philosophy.

Now, what about constraints?

  • The pay plan must be fiscally responsible.
  • The plan must be easy to understand.
  • The compensation plan needs to be internally equitable.
  • Quota setting, account assignment and sales crediting must align with the reward system.
  • The cost of administration should be minimal.

Excerpt from article "Sales Compensation: March/April 2013 SGIA Journal. Find more informative articles at sgia.org, Keyword: Journal. David J. Cichelli is senior vice president of The Alexander Group, Inc. dcichelli@alexandergroup.com

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