A common barrier to success in sales compensation plan design and implementation is inadequate or nonexistent plan documentation. (Actually, this is true for any incentive plan.)
In a short published on their web site, sales compensation consultants and authors Jerry Colletti and Mary Fiss (whose books include Sales Compensation Essentials and Compensating New Sales Roles
) discuss the often overlooked element of sales compensation plan documentation, which can ultimately make or break a plan's success. They also provide guidance on best practices and the topics which should be covered in a plan's "Terms and Conditions" document.
According to Colletti and Fiss, a well written Terms and Conditions document should include the following major topics:
- Eligibility (list of all eligible positions)
- Compensation and reward components (base salary and what it is paid for, incentive compensation, SPIFFs, recognition awards)
- Plan objectives (business goals that the plan is designed to motivate and achieve)
- Incentive payout determination (formula mechanics)
- Performance targets/range (quota assignment practice, performance range covering threshold to excellence levels)
- Performance period and payout frequency (plan period and frequency of incentive payout, incentive adjustments for under or over payment, draws, any special payout provisions)
- Sales crediting policies and procedures (definition of a sale for incentive purposes, treatment of cancellations/bad debt/charge offs, credit splits, windfalls/shortfalls)
- Employment provisions (effective date of participation, employee termination or retirement, leaves of absence, PIP treatment)
See short for more details.
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