HR and compensation departments are becoming increasingly involved in helping to frame sales compensation plans.
Business cost, profitability, governance and staff recruitment are key drivers behind this trend.
Speaking at the WorldatWork Total Rewards Conference & Exhibition, Mark Flaven, principal at Towers Perrin, said: “Sales compensation is one of the biggest business expenditures but it is one of the least assessed.”
This opens schemes up to not only potential abuse by sales teams, but if not set up correctly they can drive the wrong sales behaviours and eat into company profitability. In reference to the fact that, in the majority of cases, sales directors design sales commission structures, John Bremen, global practice director – sales effectiveness compensation at Watson Wyatt, said: “[Having HR oversee the compensation strategy] is the most basic level of governance and it is amazing in today’s world that so few organisations have this. You can’t have foxes guarding the hen house.”
However, for HR or compensation managers to be invited to the sales table to help design commission structures they need a true understanding of the business. “You have got to follow the money – you have to follow the business model to develop your sales compensation strategy,” said Bremen.
Jerry Colletti, managing partner, Colletti-Fiss, pointed out that HR need to understand their businesses at the seller level, and need to get experience in dealing with customers, products, pricing and so on. “HR has to understand the business at the deepest level,” said Colletti.
But Dave Cichelli, senior vice president of the The Alexander Group, warned that HR shouldn’t design every plan in every division, nor expect to sign them off. Instead, the department’s role is to set the overall framework. “HR only get involved when sales people go outside the framework,” said Chichelli.
He recommends that the best way to run sales compensation design is to set up a taskforce including sales, marketing, finance and HR. HR should keep control of all paperwork by offering to take meeting notes, collate data, in order to ensure that are kept in the loop on all decisions.
Getting sales commission plans right is vital for profitability and recruitment. “Profit-based measures in sales compensation plan is on the increase,” said Collitti.
However he pointed out that most still don’t pay compensation based on profitability because companies do not know where profitability comes from. However, getting it right is vital. “Today, sales jobs have replaced IT jobs as the most difficult to fill,” said Bremen.
Report from Philadelphia, USA, Total Rewards Congress 20-23 May 2008