Over the summer, I'm going to be spending time putting together a roadmap for implementing sales compensation, so I figured blogging my way through it would be a good way to provide helpful information while I organize this information. The natural place to start is with the assessment of an existing compensation plan. And here's something you're going to hear from me a lot—it's important to understand that this process is cyclical and ongoing. You'll never just one-and-done a sales comp plan. In fact, when you present plan documents to members of your sales team, there should be a clear start indicating when the new plan will supersede any previous compensation agreement and an end date for when you plan on evaluating and updating the plan. So, for starters, let's outline the main metrics utilized to define success and determine the direction in which the sales compensation program should evolve. 6 Comp Plan Metrics Alignment with organizational financial goals. This one's pretty clear since the primary purpose of a sales team is to drive financial success. However, there are many ways a comp plan can either fall out of alignment with organizational goals or stagnate and begin to lose effectiveness. Some things to look for: Changes in revenue: Maybe five years ago, the sales team hit targets easily, but their numbers have steadily fallen off. Or maybe it's the other way around, and they're exceeding targets too easily. Any changes could indicate a need to realign compensation with a new goal. Cost analysis of the sales comp plan: Look at the sustainability of your comp plan. How is the ROI? Does the cost of base pay and variable pay fit within the budget? This could be a pay mix issue or an accelerator issue. Your organization's growth and maturity: The way a young business compensates its sales team is very different from that of an established business with a well-known brand. Where is your organization in its maturity? Do you have a sales team that will take you to the next level? Or are you still operating with the same team that got you here? In my experience, this presents itself most often by the size of the commission rate and the appropriateness for the changing organization. Sales Team Performance This is another obvious one. Again, you're not just looking at today's results but rather assessing any changes that have happened since the last time you updated your compensation plan. Some questions you should be asking: How is the team collectively performing in terms of hitting quotas? What about individually? Any significant shifts in performance levels? What relationship does performance have to the assigned quotas? Do you see uniformity or a bell-shaped distribution? Are there any notable gaps in performance between individuals or groups of salespeople? What sales activities/inputs or market dynamics have changed since the last review? Sales Team Satisfaction This metric eventually comes down to a retention factor. Obviously, if you're feeling pain from frequent turnover, then you already know you have a problem. However, future-casting retention issues are important to prevent problems in the first place. For this metric, you'll want to not only look over the results of your sales team's success evaluation but also seek individual feedback, whether in the form of surveys, performance reviews, or just casual conversations. We can get into different scenarios that may arise during this evaluation at a later time, but for now, it's enough to know that just because you don't see anything concerning on the surface doesn't mean that what's happening beneath that surface is necessarily setting you up for success in the future. Ask the people with boots on the ground how they're feeling about things like their career growth, compensation, ability to meet quotas, work-life balance, benefits, and other essential factors. Also, keep in mind that as the organization grows, so will the sales team, and many of their roles will need to evolve. Some attrition is good because not everyone who helped you during the early phases of growth is the right person for the next phase of growth. But it is better to know and anticipate that rather than be surprised by that reality. Ultimately, managing through turnover means keeping strong relationships with your team and nurturing their talents so they can evolve with you. Customer Satisfaction Gauging customer satisfaction can give you insights into the cultural alignment of your sales team with the organization. While you want to provide as much space for a salesperson to shape their own success as possible, you also want to make sure their tactics and relationship-building skills are aligned with organizational values. Sales can and should be done with integrity, and customer satisfaction surveys are a good way to ascertain whether this is happening. Generally, the financial way of gauging customer satisfaction is whether they will continue to buy from the organization. While that is true, it also depends on the unknown future to determine the actions of the present. Account management processes, relationship maps, engagement tracking, and other intentional customer-centric actions should be considered when determining the efficacy of the program. This measure will indicate if there are any potential side effects with overly aggressive (think Wells Fargo) or "soft" plans that pay out richly even though the customer hasn't seen anyone in five years. Internal Equity Under the sales team performance metric, I mentioned looking out for any strange performance gaps. In general, your team should be operating predictably along a pay vs. performance curve (ideally, we want to see a very clear linear relationship). Of course, there will be front runners and those who are in last place, but if you notice anyone falling massively behind or any clustering of groups of individuals outside the normal distribution, it's time to assess your internal equity and look for things like: Equitable opportunity sizing Territory allocation reviews Quota optimization Has something changed in your territories, market, or product portfolio assignments to cause some of your team to struggle to hit performance expectations? Has something else fallen out of alignment? Dig into the underlying causes. Unconscious Bias Confirmation Bias Optimism Bias Chart each sales team member along with their demographic statistics (years of experience, education, time in the job, gender, ethnicity, etc.) and see if you notice any patterns or pockets or treatment that need to be adjusted. This can address any of the aspects of perceived fairness within the sales organization, especially if there hasn't been much organizational change for a while. The purpose of this is to question whether things need to be looked at differently and adjust accordingly. Competitive Comparison Analysis When the sales role was established, you likely checked the market for the value of the base and overall pay ranges, as well as the pay mix of the role. Or maybe you didn't, and you went with what you could afford at the time. As you're entering the time of evolving your comp plan, you should revisit that market and see what has changed. Has there been any job scope creep? If jobs have shifted, you will want to document and redefine the roles to get a better perspective on how they compare to the market. Has the labor market level of compensation for your roles changed since your last comp plan update? Where does your organization's size and complexity compare to when you started? Larger organizations pay differently than smaller organizations (and they source talent differently) How do these findings align with your organization's compensation philosophy and company values? The primary consideration here is to refresh your pay data regularly. So, when evaluating the program, be sure to collect the applicable competitive vantage point to aid in the assessment process. Knowing What to Change The chances of everything still being perfect and not requiring any adjustment are next to zero. There are simply too many factors at play to realistically hope you won't have to update and evolve your plan in any way whatsoever. By collecting these factors, you can genuinely assess the magnitude of change that ought to occur to keep up with the desired organizational trajectory and transformation.

If you’ve spent any time on this blog at all, you’ll know my belief that there’s no one-size-fits-all approach to sales compensation. Creating a comp plan that is motivating and fulfilling for your sales team while at the same time achieving your organizational goals takes consideration of many factors, including the goals of the company, the place of the organization in its life cycle, the culture, the behaviors you want to incentivize, etc. However, one of the most important factors in how you design your sales compensation program is the length of your sales cycle. For organizations with very long sales cycles, comp design isn’t as easy as offering a percentage commission on final closing. It will require a bit more thoughtfulness. What is a “long” sales cycle? For the purpose of this article, I’m defining a long sales cycle as any average sales process that extends beyond one year. And I’m not including the lead generation or initial discovery stages into that average – as we all know, it can sometimes take years to make progress with an organization or contacts before engagement in the initial phases of the selling process. Products or solutions in engineering, development, and construction services, government sales, and health system business development are good examples of offerings that take a long time to come to fruition. However, the key thing to take away from identifying roles with long sales cycle length is the experience of the salesperson - the longer the wait time between beginning the sales process and deal closure, the more challenging it is to connect the actions with the reward. How to Provide Compensation During Long Sales Cycles The goal when you have a long sales cycle, is to compress long-term actions into short-term incentives. Obviously, this is complicated by the fact that your organization doesn’t receive a payout until after the close of the deal—and depending on the contract, it may still be very far off from then. Some contracts come with payment terms where the full monetary benefit of the transaction isn’t seen for years. So, how do you keep your salesperson engaged during the long process? What does a reward program look like when it is five years from the time the salesperson starts to engage with the customer and the company receives initial payments? Here are a couple of things to consider. • Pay Mix: The split between base pay compensation and variable pay compensation should be commensurate with the risk (and corresponding reward) that the individual takes on in the role – meaning that generally, existing client sales carries less risk than new business sales. The size and scope of the job (e.g., Field Sales vs. Inside Sales) also come into play with the final equation. Generally, the split on pay for new business sits at around 50/50 to 60/40 (base to variable). Existing Client sales generally start around 60/40 and may go to 75/25 depending on the specifics of the role. Base Salary: With a long sales cycle, there needs to be financial coverage while they’re doing the work of moving a sale forward. It also means making sure their compensation doesn’t rely solely on the close of a sale—because the win rate is rarely 100%. Enterprise salespeople have very high base pay. And for good reason. Ideally, we want the sales incentives to be the star attraction, but too much pay at risk can prompt desperation (and potentially other side effects) rather than motivation and engagement. Creating Milestones: During long sales cycles, there are usually milestone moments or phases in the deal progression that increase the likelihood of the transaction getting to contract. One way to design a short-term incentive program is to identify these important milestones and build financial rewards associated with deal progression. If that isn’t feasible, putting more emphasis on recognition and praise at each of these milestones is considerably beneficial to morale during the long slog towards the deal win. Pay Curve: Thresholds and Accelerators are important components of the way variable pay is delivered. Much of this is related to the accuracy of the target (quota) and performance management as well. With the greater risk of these long-term transactions, the upside potential should be commensurate with the postponement of short-term incentives. The most common accelerators are in the 2x to 3x (times) base rate of pay. Ultimately, the performance levels for long-term transactions need to be modeled for the best fit and affordability specific to your organization’s financial sustainability. In short, you have to think about rewarding the process more than the outcome in order to improve the retention and motivation of your sales team. To learn more about the many complexities and nuances of creating a sales comp plan that attracts, retains, and motivates talent, sign up for my biweekly newsletter .

Over the past few weeks, we’ve delved into six crucial aspects of best practices in sales compensation: culture, financial due diligence, job content, pay mix, objectives, and plan mechanics. Each of these elements plays a pivotal role in shaping an effective and motivating compensation plan. Today, we turn our attention to another key component—timing. Defining Performance Period and Payout Timing There are two key aspects of compensation timing that affect how effective your compensation plan is at helping your organization reach its goals. These are: Performance Period : The timeframe over which sales performance is measured in the compensation plan—monthly, quarterly, annually, or per deal. Payout timing: The timeframe when a salesperson receives incentive earnings associated with their level of performance. While these concepts are distinct, they work together to influence sales behavior, business cash flow, and overall organizational success. Aligning Performance Period and Payout Timing with Organizational Objectives A well-structured performance period and payout schedule will reinforce your organization’s goals. For example, if you’re focused on rapid sales cycles and high transaction volume, you’ll probably use a shorter performance period and frequent payout timing to keep things moving along. On the other hand, if you’re prioritizing long-term account growth, large enterprise deals, or strategic selling, you’ll probably want to utilize longer periods (quarterly or annually) to encourage sustained effort and deeper customer relationships. Motivating Sales Teams with the Right Timing Salespeople are naturally driven by immediate, tangible rewards. If the gap between effort and payout is too long, enthusiasm may decline as the connection between work and reward weakens. On the flip side, overly frequent payouts—such as daily or weekly—could lead to transactional thinking rather than strategic selling. This is especially true when there are more frequent pay periods with very small amounts of pay. So before setting your performance period and cadence for payout, it’s essential to ask yourself what kind of behavior you’re trying to reward in your salesperson, as well as the sales function required to execute on your specific market and strategy. For long sales cycles where frequent payout timing simply doesn’t make sense, you’ll need to balance that by making sure your salesperson is aligned with organizational goals and that the salesperson is able to achieve meaningful levels of performance (as well as payout amounts) within that performance period. Best Practices for Performance Period & Payout Timing Choosing the right combination of performance period and payout timing is a strategic decision that shapes sales behavior and business outcomes. When well-designed, this timing structure maintains motivation, supports financial sustainability, and aligns sales incentives with broader company goals. A few best practices prevail: Align the payout to as close to the performance event (deal closing or otherwise) as possible, conditional on company affordability/sustainability Ensure that the performance period selected is closely aligned with the average sales cycle length. Generally, if there is a very short sales cycle, then a short performance period with quick pay is expected. That does scale up to very long sales cycles and longer performance periods with lesser payout frequency. Most organizations are somewhere in between. Be sure to recognize that it is specific to the sales role and not the company as a whole.

In a way, we’ve already talked a lot about several components of sales incentive plan mechanics. We’ve covered the importance of culture , fundamental financial model ing, establishing job content , determining pay mix , and setting objectives . The next step will bring it all together. Some Important Sales Compensation Vocabulary We’ve previously described, at length, the two primary types of sales comp models (bonus plans and commission rate plans) as well as how to determine which plan best supports different sales roles. But there are a few other terms that are important to know when developing the underlying plan mechanics. The following list comes straight from my book Starting Simple: Sales Compensation . If you want a full but easy-to-understand breakdown of sales compensation, that book is the place to start. Accelerator--An increase in the rate of pay that occurs at a certain level of performance. Generally, this starts after the achievement of 100% of the target performance objective. Deal Cap--The maximum amount of pay on any single transaction Leverage--The sales incentive that would be paid out for performance between the target and the point of excellence. It is represented as a multiple of the target incentive Pay Curve--The slope of the line of the rate of pay throughout all levels of performance. Think of performance as the x-axis and payout as the y-axis. The pay curve represents the relationship between the two. In a fixed-rate plan, this is a straight line, representing a fixed rate of pay for every unit of measured performance (activity completed, dollar of revenue acquired, or percentage point of margin sold, etc.) Plan Cap--Maximum amount of pay under the construct of the plan Point of Excellence--The point on the pay curve that represents the 90th percentile of salespersons’ performance levels (should be greater than 100% of performance achievement) Rate of Pay--The amount of pay per unit of measurement. This encompasses the relationship between performance and payout at any point along the pay curve. Target--A point on the pay curve that represents 100% payout and 100% performance or (100%, 100%) Target Incentive--The sales incentive amount paid for achieving 100% of sales performance objectives Threshold--The point at which pay for performance starts. The threshold point should sit somewhere between 0% and 100% performance levels. It can be zero, which essentially means there is no threshold. Zero--The first point on the pay curve, represented by (0%,0%) for zero level of payout and zero level of performance Best Practices for Plan Mechanics A well-structured sales compensation plan aligns with your business objectives while keeping your team motivated. You need to balance risk and reward, ensuring that pay mix, thresholds, and accelerators drive the right behaviors. To evaluate whether your plan is driving the right behaviors, map your sales team’s performance along the pay curve—identifying where top, mid-level, and low performers fall. If most reps cluster near the threshold, the plan may not be motivating enough, while a heavy concentration at the high end could indicate overly generous payouts. A well-balanced distribution should show a clear progression, with incentives effectively encouraging continuous improvement and rewarding top achievers appropriately. Caps are controversial, and while they can help control costs, they can also discourage high performers. Accelerators, on the other hand, can be a powerful tool to motivate salespeople to exceed expectations. The key is to strike a balance—rewarding overachievement without creating unsustainable payout structures. Finally, sales compensation plans should evolve with business needs. In a future post, I’ll be talking about the importance of a regular review cadence for maintaining performance and fairness. When done right, plan mechanics create a system that doesn’t just pay salespeople but actively inspires them to excel.

Setting objectives is a constant balance between meeting your organizational goals and being realistic about the capabilities of your sales team. You want to be aggressive enough to reach revenue and profitability expectations as well as keep everyone motivated, but you don’t want to be so aggressive that your team feels it is impossible to succeed and just gives up. In part 5 of my Best Practices in Sales Compensation Series, we’ll go over some of the top things to consider for keeping your sales team engaged and successful. (Read Part 1 , Part 2 , Part 3 , and Part 4 ) When setting objectives for your organization, consider what you absolutely need versus the ideal you want; take into account the resources you have to work with (as well as the market situation and sales productivity); and create a target range ranging from easy to impossible—and place your target somewhere in the middle of that range. Types of Objectives There are several different types of objectives you might set for your sales reps. They can be sales process activities like making calls or qualifying leads. They can be progression milestones like hand-off triggers between internal teams or customer signoffs. But for our purposes, we’re going to focus on financial objectives such as revenue and profit. Best Practices for Setting Objectives Objectives need to align with organizational goals and provide achievable but challenging targets for the sales team. To accomplish this, consider these practices: Make sure that the salesperson has the ability to influence if not fully control, their capability to meet and exceed the objectives. Set realistic expectations. Unrealistic targets will stagnate your growth potential and give you a poor reputation with employees (as well as the labor market). Provide a clear and visible path to achieving the objective. Try to limit the quantity and types of objectives. More is not better. It’s better for a sales rep to be able to focus on a singular goal than to have their attention split in too many directions. Lastly, make a plan for what to do if your salesperson exceeds the target as well as underachieve target objective levels. These are just a few of the very important considerations in setting your objectives. Take some time to explore my blog or check out my books for a more in-depth look into sales compensation.

Best Practices in Sales Compensation Part 4

In my first Best Practices post, I talked about the importance of knowing what you can pay for your sales roles before worrying about what the market is saying. In my second post, I covered ways to utilize culture in a sales organization . The following Best Practice in sales compensation involves job content. Job content plays several roles in your compensation plan: 1. It gives your salesperson a guide to what success looks like in their role. 2. It gives you a guide to evaluating the performance of your salesperson. 3. It rationalizes differing levels of variable pay outcomes for varying performance levels. 4. It provides your organization with the structure needed to comply with any reporting, pay transparency, or other regulations. Hopefully, that’s enough to convince you of the importance of taking the time to define your new roles and revisit the definition of your existing roles. Now, here’s how job content actually does those things. Defining the job The first role of job content is to define the who, what, where, when, and how of the function. It can be tempting to borrow a job description from LinkedIn, Glassdoor, etc., with the assumption that the content will be similar enough to fit your needs. However, the way a specific role performs is unique to the organization it’s acting in, which is why it’s important to take the time to define the job from scratch. Here are the questions you should be answering in your job content: What does the person need to do on a daily basis? How does this individual pursue sales, and in what segment or with what type of customer? Where should they focus their time and attention when building a pipeline of deals? Who should they be interfacing with, both internally and externally? When do they engage with customers and/or prospects? What portion of the sales process do they own or support? How do they interface with and influence decision-makers? Now, even though I said to write your job description from scratch, that doesn’t mean this is the time or place to get too creative. Job seekers are going to be searching by job title or category, so it’s essential to stick to the common vernacular regarding industry jargon and expected job titles. Job Description: A Byproduct of Job Content Another positive outcome of creating job content for your roles is that you will have generated much of the information needed for a job description if or when you’re ready to hire. Information such as: Job duties and responsibilities that clarify the type of work and engagement with customers. Qualifications/Requirements that are both minimum and desired. Those include education, knowledge, skills, capabilities, and competencies. Performance measures of the role include items like achieving sales targets, new logo acquisition, development of pipeline, accuracy in forecasting, etc. With all of this information on file, it will not only be easier for you to prepare to hire for the roles you want, but it will also be easier to evaluate existing employees in those roles. Beyond all of that, you’ll be well prepared for competitive market research and establishing your variable pay program. I’ll be posting more best practices on the blog, but if you’re anxious to dive deeper into the subject of sales compensation, you can grab a copy of my book Starting Simple: Sales Compensation and consider working through the companion Workbook to build a sales compensation plan from scratch.

Best Practices in Sales Compensation Part 2

Best Practices in Sales Compensation Part 1