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Gilmore Lewis offers a comprehensive approach to creating a better sales organization. We provide results based strategy and solutions for sales organizations that need help adapting to an ever-changing marketplace.
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pictureTreating the Symptom Instead of the Problem?

 While some clients approach us initially to help them design new sales compensation plans because they think that this will fix their revenue problems this may just be an attempt to treat a symptom.

Without a solid foundation and aligned sales objectives changing sales compensation plans may do little to solve the core problems or challenges which lead you to make the changes in the first place.

pictureSales Compensation Automation & Administration

We help clients design and implement sales compensation solutions which automate key components of the commission calculation process

Sales Compensation Design

Whatever term you use to describe sales compensation, whether it is:

  • Commission Scheme
  • Incentive Compensation
  • Sales Commissions
  • Sales Compensation
  • or Variable Compensation 
picture
it is the single most powerful tool sales management has to influence the behavior of their sales people.
Most sales people have an uncanny ability to find the sweet spot in any sales compensation plan they are given. They can find the low hanging fruit in the plan and that tends to be what they focus on first. Knowing this it is crucial to direct the correct behavior through the compensation plan.
Our experience and track record of designing AND administering sales compensation plans can be leveraged to help you develop effective solutions to motivate and reward your sales people.
 

Key Elements of Compensation Design

Alignment with Objectives

Compensation and rewards need to be aligned with business processes, corporate objectives, organizational structure and the sales model. If your sales commissions plan is not well designed you may be compensating sales people to do things which are counter to your corporate objectives. To learn more about this see our white paper on "How to Align Sales Compensation with Corporate Objectives".

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Best Practices

This is really the sum of the best tried and tested components of a compensation plan. Having been involved in the design and implementation of numerous sales compensation plans we can help you avoid mistakes others have made before and leverage their successes.

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Commissions

Calculating or Administering Commissions can be a complex process depending on the different variables in your business model and information systems.

More information on this topic can be found on our Sales Compensation Administration page.

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Compensation Software

Today there are a number of software applications and hosted solutions for calculating sales commissions. We can help you determine which is the most appropriate for your business.

Here are a few of the options you have for automating commissions:

  • MS Excel or Custom Built In-House Solutions s

  • SPM (Sales Performance Management)

  • EIM (Enterprise Incentive Management

  • OnDemand Sales Compensation

MS Excel or a combination of in-house developed applications are the most common solution for small sales teams. These can be quick to set up and modify but as they reach a certain size or complexity they can become unstable and more complicated. We have and continue to use MS Excel to calculate and process commissions for many small and mid size companies.

SPM or Sales Performance Management is a term being used by a few software vendors and represents the next level up in sophistication and feature/ functionality from Excel. SPM Solutions are expected to fill the gap between in-house designed compensation systems, many of which rely on MS Excel, and the traditional EIM Solutions. These applications help automate much of the sales commission calculation process and provide valuable reporting tools. They can also help you create and benchmark sales commissions metrics.

Currently there is quite a jump in price between MS Excel based in-house solutions and EIM and that is the market niche these SPM Solution providers hope to address. This type of solution may be right for you if your company is mid size or approaching that size.

EIM or Enterprise Incentive Management solutions are the high end solutions for managing pay across an enterprise. These are not limited to sales people's plans but can also include other employees, business partners, executives, customers, etc.

EIM takes performance management several steps beyond just calculating sales commissions and often include robust plan modeling, reporting and integration with other sales operations applications. Many include detailed reporting pages designed for the sales reps, managers, and business partners. Think of this as a convergence of commissions automation and sales analysis.

While EIM and SPM solutions can automate and improve the sales commissions process they do not guarantee an effective compensation plan. If you have a poorly designed or misaligned sales compensation plan all this software will do is to process these plans more efficiently.

OnDemand Sales Compensation solutions are targeting the 50-1,000 users market and are essentially the same as the SPM referenced above in terms of functionality. Where they differ is in the behind the scenes mechanics of how the solution is hosted. We can help you decide if this is the right solution for your business.

While these solutions can automate and improve the sales commissions process they do not guarantee an effective compensation plan. If you have a poorly designed or misaligned sales compensation plan all this software will do is to process these plans more efficiently.

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Contests & SPIFFs


Contests and SPIFFs or SPIFs (Special Program Incentive Funds) provide add-on programs to reward sales people and/or business partners for ad-hoc sales promotions. These are in addition to the regular sales commissions and allow on-the-fly additional focus on any specific sales objectives.

SPIFFs can be paid out in: cash, prizes or additional commission for increasing sales of a particular product or service.

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Data Accuracy and Availability


Sales data, especially data which may come to you from a business partner in the form of POS (Point of Sale) data needs to be checked and "cleaned" before you use it to calculate commissions. This process should include verification that they are using your part numbers correctly, checking that any address information is consistent (i.e. state and zip match), along with other relevant checks..

For a sales compensation plan to be successful it needs to be both measurable and attainable. You can have the best of intentions, but if there is a problem with the data, quota or reporting tools you may be limiting your sales potential.

Measurability can be influenced by many factors including the reliability of your internal sales data reporting, external sources, and timing. If you rely on multiple business partners for sales data what happens when one or more reports are late or incomplete?

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Legal Considerations

These can be addressed in a section of the sales compensation plan which sales people are given. They should cover all possibilities you may foresee and even unlikely events.

Topics should include how certain events will affect commission payouts, such as: terminations, extended leaves of absence, territory transitions, returns, etc.

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MBO / KSO

MBO (Management by Objective) and KSO (Key Sales Objective) cover a portion, either a small part or even whole of the sales persons' commission pool. These are generally used when there are certain activities you want a sales person to do which are not directly measurable by sales revenue alone.

Examples of these Objectives include: # new customers, attend product training events, make so many presentations, close x amt. large deals, turn forecasts in regularly, etc. The MBO is more prevalent with management positions and the KSO is an adaptation of the MBO for sales representatives.

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Plan Design and Policies

The Plan Design is where the corporate and sales objectives need to be condensed into marching orders for the sales people. This needs to support the marketing sales strategies and the sales coverage plan. By reading the sales compensation plans you should be able to clearly understand the marketing sales plan.

The policies should establish the ground rules for behavior within the structure of the compensation plan, however the plan itself needs to contain the right incentives in the first place so the policies do not have to make up for its' short comings.  

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Plan Documentation


The Plan Documentation needs to strike a balance between covering all the bases and explaining the plan mechanics while at the same time not getting too lengthy and overly complicated. If it is not clear to the sales people how their commissions are calculated they may not perform all the activities you want them to do even though you accounted for them in your plan.

Also if a plan is too complex the sales people will spend a lot of their own time away from selling trying to figure out how they get paid. Use examples and scenarios to further illustrate plan metrics, especially the benefits of exceeding plan.

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Quota Setting


Quotas need to be attainable. The better your sales reporting and analysis the more accurate your quota setting can be. When setting quotas think about the attainable outcomes and what results you desire once the actual revenue is counted. In addition to the numerical outcomes you also need to consider the effect your quotas will have on motivation and morale.

The desirable outcome as far as quota attainment is concerned is to have a bell curve with approximately two thirds meeting or exceeding 100% attainment and the remaining one third under 100%. There will be people at both ends with some under performing and others over performing. This bell curve approach may not be feasible though for small sales teams.

Quotas need to be set so your compensation plan can reward those who meet and exceed quota while letting those who under perform see how their lack of performance negatively affects their commissions.

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Regulations


It may be time to consider a review of your commission practices in light of ongoing scrutiny of Sarbanes-Oxley compliance and industry regulators. Areas of concern to regulators in addition to being able to identify fraudulent compensation practices include the ability to audit the sales compensation process.

From an accounting perspective most of this should be in place anyway with an ability to audit each stage of the commissions process from the various stages between raw sales data, the allocation of revenue to sales people all the way through the commission plan calculations.

The EIM solutions referenced earlier take this beyond the capabilities of MS Excel and the average "in-house" solution by creating an audit trail which even documents changes and adjustments to commissions.

You may also want to review the latest changes to the Fair Labor Standards Act (FLSA). Here you can find out which of your employees fall in the Exempt and Non-Exempt categories, and how overtime pay applies to them.

You may wish to reevaluate your sales compensation plan structure as well as your sales operations policies in light of these FLSA regulations.

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Territories and Channels

Territories can be established along geographic lines as well as by industry verticals, named/ major accounts, and many other variations. If you are using geographies it is important that you collect zip code information in your sales reporting as that is the easiest way to define a geographic territory and retain flexibility to change territory makeup.

Channels can be regarded as territories for those responsible for their performance. Multi tier business models can benefit from collecting sales data at various stages in the channel.

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