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What Do I Owe You? A Sales Compensation Philosophy

Business man sitting in chair and thinking about sales compensation plans

Did you know the “Sales” page on Wikipedia doesn’t mention anything related to Sales Compensation? Go ahead and CTRL+F for just the word “compensation” (you can try “commission” as well if you want to be thorough), I can wait… You see! Something so fundamental to sales itself, compensation, is completely overlooked and undocumented on one of the world’s leading sources of information.

This leaves the rest of us asking three questions:

  • How do we compensate someone who makes a sale?
  • How do we ensure the proper mechanics are in place to compensate accordingly?
  • Why compensate for a sale?

The last question, why, is what will define you as an organization. Compensation is the number one reason we all work; our market-based economy requires it.  But why pay differently for sales? Why sell your specific product? Why work for your leaders? Without any way to answer these questions you, your team, your organization, your customers, are all one competitor price change, feature update or leadership churn away from irrelevance.

Sales Compensation Philosophies

I will preface by saying that every person and organization is wholly unique.  Philosophies cannot be taken up overnight.  This is something all people and organizations have to come to with experience and knowledge gained through personal soul searching and interacting with diverse groups of individuals throughout the world.  That being said, here are a couple of examples we’ve helped organizations develop or bring to the surface to ensure their sales compensation plans are rooted in a strong foundation.

  1. Employee First – “We give employees the highest level of autonomy to play their strengths and protect against their weaknesses. They are entrusted to do what is best for themselves, our customers, vendors and shareholders.” Their sales compensation plan would perfectly align their business strategy with individual actions taken by all sales team members. They provided them with appropriate support to close all deals that were in the best interest of the company and were individually rewarded for doing so.
  2. Customer First – “Forever seeking the best outcomes and solutions for people and organizations regardless of cost.” This organization sees themselves in the service of others. Their compensation plans ensured that no sales were made to customers who would not benefit from the use of their products.  Happier customers stick with you longer and lead to long-term profitability.  Developing a plan that reduced churn as much as possible was at the heart of what they wanted to do, and they were willing to penalize themselves (forgo business) or penalize the sales representatives who sold products that were not ideal fits for customers.

Every company is unique and should tailor their compensation philosophy accordingly, however, and it can’t be said enough, compensation is more important than any other reward you can offer a sales professional.  When your sales team views compensation favorably their propensity to also feel more favorably toward the key drivers of engagement such as productivity, relationships with executives and internal career trajectory skyrockets.

Building On the Foundation

Once the Sales Compensation philosophy is established, there is no shortage of options one can take to designing a plan.  These items will be covered in later articles but there are two best practices that should always be considered:

  1. Align Compensation with Key Performance Metrics – Ensure that compensation is closely tied to company performance. If plans begin to diverge from company goals, you will find yourself over or under compensating your team and constantly having to explain variances to executive level management.
  2. Develop Compensation Plan with Operations Team – As Sales Compensation can live in various departments, no matter what, it is critical that those who will be executing on the plan should be involved in plan design. Too often companies design a plan that is out of sync with technical or resource capabilities internally, which leads to errors, manual adjustments, accruals and (most importantly) unhappy salespeople.

People don’t buy what you do, they buy why you do it.  Truth is the only foundation solid enough to stand on, and if your compensation philosophy is rooted in half-truths, you are doomed from the start.

If and when you are ready to build upon your current sales compensation philosophy, or need help shaping one, A&M is here to help.

This article is part one of a monthly series on sales compensation planning and is brought to you by Alvarez & Marsal, a Talentfoot Executive Search strategic partner.