In many companies top sales management pays a great deal of attention to how a sales compensation plan is designed. That is understandable because sales executives want assurance that what sales people are paid for is consistent with the business results desired. Equally important, but often overlooked because it is not as "sexy" as design, is plan documentation.
Given the level of sophistication at which many companies operate, we are surprised that sloppy plan documentation continues to be prevalent. The purposes of this Short are to identify the three topics that we have found through our work with clients requires attention and to suggest actions that companies could take to improve plan documentation.
TERMS AND DEFINTIONS
A complete Terms and Conditions (T&C) document identifies and defines all business, compensation and employment terms pertinent to understanding the plan. This also includes policies and processes applicable to how the plan operates. The benefit of this documentation is that it provides a consistent vocabulary for all business stakeholders and participants to use when referring to the plan. The table below indicates both the terms and conditions impacting incentive payout that we suggest should be identified, defined and illustrated in a complete T&C document.
SALES CREDITING
Simply stated, credit for as sales is defined and allocated is covered by sales crediting rules. Thus, a complete plan document defines the sales credit event, e.g., booking, shipment, invoice, payment or some combination of these. When more than one "seller" is involved in closing a sale, it is wise to prescribe rules for how credit is assigned. The table below provides a helpful starting point for making such a determination.
EMPLOYMENT STATUS
Participation in company plans is often defined by employment status. The sales compensation plan is no different in that regard. Thus, a complete T&C document makes clear how changes in employment status impact plan participation. Specifically, the following conditions should be clearly defined (and, illustrated where applicable):
- Eligibility, when plan participation begins
- In plan year changes, e.g., promotion, transfer
- PIP (performance improvement plan) impact on plan participation
- Termination (of all types, including death)
- Leaves of absence (e.g., medical)
- Unethical behavior
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