Compensation Plans and Performance Management


At a recent client engagement, I was asked to develop a compensation plan for the sales organization.  After reviewing the current plan, goals of the company, and issues to address, I asked the executive committee what they desired to accomplish.  In unison, they replied, “grow revenue!”

Within any sales organization, your ability to design a motivating and competitive compensation plan helps to drive sales and revenue.  That said, is that the only thing you want to accomplish?  Data shows that most sales executives (Director of Sales or Vice President of Sales) last on average 19 months in their role.  The cost of replacing a sales executive is time consuming and costly to the organization.  So, what is the answer?

Compensation plans drive activity toward a sales goal, but do not manage the professional progression or intangible items that help a sales executive become better at what they do today and in the future.  Your best “comp plan” is a Performance Management System that provides a mechanism to develop people to achieve and excel within your company.

The Siemens Corporation provided the following explanation and description of a Performance Management System.

Performance management is the practice of actively using performance data to improve operations.  In the field of People Management, it involves business strategy and performance measures to establish Individual Performance Targets and enable management to evaluate the achievement of these targets and, additionally, to evaluate the Employee’s capabilities shown through his/her actions and behaviors.  Development of employees on the other hand is the process that enable employees to increase their contribution to the organization – a contribution linking the achievement of results and individual’s capabilities to the goals and challenges of the organization – and to be rewarded and recognized accordingly.

The Performance Management System satisfies the following:
  • Incent and drive a high-level of performance to overachieve yearly goals.
  • Develop people for promotions by providing a means to learn and grow.
  • Increase effectiveness within their current role.
  • The system clearly defines roles and responsibilities.
The Performance Management System uses SMART processing:
  • Be Specific – Are objectives clear and precise?
  • Make them Measurable – Can you clearly see if the objective was achieved?
  • Are they Action oriented? – Are all actions clear to you?
  • Make them Realistic – Challenge but not ridiculous!
  • Time sensitive – Have a clear start and end date.

Performance Management creates a consistent written process that strikes the right balance for the employer and employee to over-achieve today and in the future.

Anytime I have instituted a Performance Management System, I have used a Management Scorecard.  The Scorecard is the master plan of revenue goals for the year, but it also depends upon employee feedback and your ability to manage the system throughout the year.