Best practices suggest cross-functional teams that include personnel from finance, HR, compensation, sales management and sales operations departments design the most effective sales incentive plans. However, this often brings together two divergent views on sales compensation: a financial view and a human resources view. Learn how to create a balanced plan in this article.

1. I D E A S T O H E L P
G R O W Y O U R
B U S I N E S S
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BY KEITH WELDON
C
urrent best practices suggest cross-functional teams
that include personnel from finance, human resources,
compensation, sales management and sales operations
departments design the most effective sales incentive
plans. However, assembling this type of diverse design team
frequently brings together two divergent views on sales
compensation: a financial view and a human resources view.
The financial view asks the questions: 1. Is the plan
affordable and does it generate a return on investment? and 2.
How much sales expense is fixed versus variable?
Affordability and Return on Investment
A design team should determine how much salary
and incentives they will pay during a certain performance
period. Additionally, future expenses can be projected using
“what-if” modeling for the current or a proposed new sales
compensation plan.
The return on investment typically depends on the metrics
used in the sales plan. Sales revenue is the most common
metric used today. Finance-focused design team members can
translate revenue results into margin or profit. Profit margin
should meet a hurdle rate the company can live with.
Fixed vs. Variable
Design team members with a financial view typically prefer
variable costs to fixed costs in sales compensation plans. It’s
understandable. Sales people get paid when they sell a product
and/or service. On the other hand, variable cost for sales is
safer for the company because it protects it from poor sales
performances.
In today’s market, most sales jobs include a base
salary. Base salaries help companies retain top performers
because they provide top talent with income security. Top
performer turnover usually results in lost revenue, lost
market share and additional recruiting and retraining costs.
The HR view starts from a completely different place: the
job. It is important to define the role of the sales person. For
example, an account manager is a significantly different job than
a business development representative.
Article reprinted from Spring 2016GROWTHBIZS T R A T E G I E S
Market Value
Next, the HR view focuses on the market value of the job.
Using compensation survey data, compensation professionals
can match the specific position to the market (based on
industry, geography, company size, etc.) and determine the
market value for each position.
Pay Mix
Pay mix represents the percentage of total target cash
earned through base salary and the percentage earned
through the incentive. A sales person should have a pay mix
at the target level performance that reflects the characteristics
of their selling role. Generally, the more influential the sales
role and more new client selling required correlate to the more
pay at risk. For example, an account manager may have a pay
mix near 80/20 (target total cash compensation/base pay
incentive) because the position is more focused on retention
and relationship management. By contrast, a business
development representative who is selling to new clients might
have a pay mix of 50/50 or even 40/60.
Motivation
Sales people typically are more motivated by money
than are other positions in an organization. An effective
sales compensation plan must provide significant earning
opportunities for above target performance. A plan that is
correctly designed should reward a sales person who regularly
exceeds their performance targets.
Getting the Balanced Perspective
While the financial and HR views of sales compensation
may seem very different, both are critical to effective plan
design. Teams must examine their plans from both viewpoints in
order to create an effective sales compensation plan.
Our business is growing yours
Financial/Human Resources View
Sales Plan Design Best Practice
Financial View
n Fixed vs. Variable
n Affordability
n ROI
HR View
n Job
n Market Value
n Pay Mix
n Motivation
KEITH WELDON
CBIZ Human Capital Services
St. Louis, MO • 314.995.5565 • kweldon@cbiz.com
@cbiz_hcs
Human Resources
Sales Compensation Debate:
Financial View vs. HR View