How To Communicate Compensation Plans Effectively
2015 is nearly upon us and many of you are preparing to roll out new sales compensation plans and supporting documentation. How do you ensure that your plan document has all the right ingredients and is communicated to the sales reps in the best way? Here are a few tips you may find useful.
Distribute the Plan Document Early
It is critical distribute the plan documentation as close as possible to the start of the plan year, preferably within the first week of the new plan year. At least two states – California (AB 1396) and New York (Section 191 of the Labor Law) – require that employees who are paid on commission must be provided a written contract which sets forth the method by which the commission shall be computed and paid. These laws further require that the employer provide a signed copy of the commission agreement to the employee and obtain a signed receipt for it. Delaying indefinitely (or skipping) formal documentation is no longer simply a bad business practice but put you on the wrong side of the law. Do whatever you can to get your plans out on time.
Often, major changes are incorporated in the new sales plan and simply pushing the document to the sales reps is not enough. If there are significant changes to the design, setup webinars with the reps and walk them through the plan components. Give them a platform to ask questions and clarify; their questions may even give you important inputs to make suitable changes to the document.
Provide Clear Guidance on How to Sign the Document
Many systems allow you to capture an electronic signature. However, sales reps often plead ignorance about this when clear instructions are not provided. Focus on a couple of things here: First, provide a clear guidance on the signature process. Second, clearly indicate the due date and send reminder emails couple of days before the due date. Send follow up emails to those who miss the deadline and copy their direct manager. And consider what some companies do – withhold commission payments until you have a signature on file.
Make Your Plan Document Lean and Precise
We often see plan documents that are too bulky which make them tedious to read and hard to follow. Most of the bulk comes from the Terms & Conditions of the compensation policy. Focus the document on the plan components and corresponding business objectives and make the Terms & Conditions as a common appendix.
Consider Adding a Clause About Windfall Payments
You may periodically experience a windfall sale – a large sale that the selling rep didn’t have much influence over. This often translates to a large, singular payment of two to five times the annual target commission target. Instead of simply paying this out, consider the safeguard action of having a windfall clause in your plan like “Under extraordinary circumstances, the company has the right to adjust the total commission payment based on a common sense business approach.”
Use Charts and Graphs for Visual Appeal
The compensation plan document can be a great motivational tool. If you include graphs and charts which creates an imagery of how compensation figures grows when attainment levels rise, it attracts your sales reps attention immediately. A picture paints a thousand words!
Communicate Linked Components Clearly and Concisely
Some plans will link the payment of one component with the performance of another component. For example, a sales rep could carry both a product and a service quota. Companies that link components don’t want a rep to be satisfied with payment on a single component at the expense of the other. Typically these plans work in such a way that the rep does not get a product accelerator unless he also meets the service quota (or vice versa). Numeric examples should be used to help the rep understand their compensation under various scenarios. Each scenario can depict a service-product quota break up and projected earnings.
Cover a Single Position or a Role
There can be situations where an individual has carried out the responsibilities of two roles for a limited period of time. For example, take the case of a manager who has filled in for a sales rep who has quit the company. For such cases, do not create a new plan. The individual should be assigned two separate plans for each position or handled as an exception and with senior management approval.
Now that you are ready to go out with your plan, one last thing!
Make sure the plan document is reviewed and blessed by all stakeholders (i.e., HR, Legal, Sales, Finance) before you communicate to your sales reps. The last thing you want is to make yet more changes to the plan document after the rollout.
Make it a good year!