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How To Improve The Sales Compensation Process

The compensation management process may feel complicated and overwhelming at first, but it is worth examining and reviewing periodically. In a competitive job market, finding ways to attract and keep great employees is crucial. The compensation management process provides ways to keep employees by creating an equally competitive compensation plan. 

But what is a compensation plan, and what does compensation management mean? 

Overview of Compensation Management

A compensation plan is the "total compensation" your team members receive, including employee benefits like health insurance, salaries, bonuses, and other pieces outlined in a compensation management system. 

Patrick Proctor wrote in Business News Daily outlines the compensation management process as identifying key areas like the compensation forms, including indirect compensation as part of the total employee compensation package. Proctor notes, "The right way to launch a compensation program has a lot to do with doing your research first and then not skipping or missing any critical steps."

Reviewing the total compensation strategy, including employee salaries and employee benefits, are part of the compensation management process. The MBA Knowledge Base says a quality compensation management system is "meeting the needs of both employees and the organization."

The website continues to explain that there are purposes for compensation management:

  1. "Attracting and Retaining Personnel"
  2. Motivational
  3. Optimizing
  4. Creating Consistency

Developing/Refining Your Compensation Management Process

According to the MBA Knowledge Base, there are 5 steps to the compensation management process

Step 1: Start with the "organization's overall strategy."

MBA says it's technically not part of the compensation management process, but "is the starting point in the total human resource management process." Because it's part of human resource management, it's clearly a crucial detail. If the human resource department doesn't understand its strategy for running its business, it's nearly impossible to create a compensation management process that aligns with the organization.

Step 2: Defining the compensation policy.

The compensation policy establishes "base compensation, incentives and benefits and various types of perquisites to various levels of employees." Included in this compensation policy are which of the 4 different compensation types included in the policy. Business.com breaks the types as follows: 

  1. Hourly - eligible for overtime pay (if working over 40 hours per week) paid minimum wage and higher, plus many are shift workers, requiring clocking in and out of each shift.
  2. Salary - calculated on an annual rate and is "the most common method of direct compensation," and exempt employees do not receive overtime pay.
  3. Commission - sometimes referred to as "piecework" or "piecemeal," commission could be based on "volume, production or a predefined level of performance."
  4. Bonuses - a helpful and motivational incentive piece to a compensation program; bonuses vary significantly in their amounts and how they are used in the compensation management system. 

The compensation policy also considers job analysis as part of "defining job description and job specification" to establish "the relative worth of various jobs." This part of the process is how the compensation package is determined.

There are also "indirect compensation" options to consider with creating a compensation package. Here are some examples:

  • Vacation time/paid time off
  • Flexible working hours/scheduling
  • Additional retirement benefits
  • Student loan help
  • Child care expenses help
  • Company vehicle
  • Company equipment like computers, tablets, or cell phones

Step 3: Reviewing Contingency Factors

"Various external factors are conditions of human resource market, cost of living, level of economic development, social factors, pressure of trade unions and various labor laws dealing with compensation management." After conducting wage/salary surveys, the MBA Knowledge Base suggests reviewing the results to evaluate employees' perspectives on their compensation package.

Step 4: Design and Implement Compensation Plan

At this stage, the compensation management system gets into the details like:

  • timelines for wage/salary increases
  • incentive plans
  • benefits
  • prerequisites

To implement the compensation plan, finding compensation managers often use compensation software to make the entire compensation management process as streamlined as possible for everyone. 

Step 5: Step back, Evaluate and Review

Especially if you're struggling with employee retention, reviewing the company compensation plan periodically is essential to make sure it stays competitive and discovering "employee satisfaction and morale or in terms of end-result variable like increase of productivity."

Compensation Managers

Digitalhrtech.com explains, "A compensation and benefits manager is responsible for ensuring fair and accurate compensation, including regular salaries, bonuses, stock options, pensions, and any additional types of employee benefits."

Typically, compensation managers work with human resources personnel, along with hiring managers and recruiters. In addition, compensation managers help with the compensation management process by evaluating market rates, "building pay bands," evaluating jobs, and making sure the pay scales and rates are fair across the organization. 

Compensation Managers may assist the organization and human resource management when using the "3 Ps of Compensation".

  1. pay for position
  2. position-based pay
  3. job-based pay

The compensation management process is streamlined when using a strategic but fair-minded compensation manager. 

Sales Compensation Management Program

Many choose a career in sales because of the advantages of lucrative sales commissions. While others may work for years to achieve higher salaries, salespeople often pull in heavy commissions. Some companies or sales roles offer a base salary, especially in the early days of a sales person's career. Sales compensation programs are often more competitive than other jobs, so creating an attractive compensation program is as important as the other benefits offered with your compensation package. 

Thebalancecareers.com suggests making sure the sales compensation program "match[es] company objectives. For example, if a company wants increased revenue from sales, they need to compensate accordingly to incentivize the sales team. 

In addition, the sales compensation system needs to be clear and fully documented. For example, there should be no question on how much or how often a salesperson is paid. 

As markets change, so does the sales compensation management program. Thebalancecareers.com also reminds us that the sales managers need to stay connected to the sales team members.

Along with these moving targets of changing economy and marketplace shifts, the sales manager needs to"monitor the situation" to make sure salespeople meet their goals too and manage expectations around the sales compensation program.

Ideally, an effective sales compensation management program is regularly updated based on marketplace and organization goals. Then, with a well-designed compensation program managed efficiently by the sales manager and organization compensation manager, things can run smoothly for everyone. 

Sales Compensation Management Software

Some sales compensation management software is stand-alone or part of the human resource management software. Sales compensation management software "helps HR personnel curate, manage, calculate and budgets for employee salaries," which is very handy if the sales team members receive a base salary with commissions paid on top of the base salary. 

While typically, the human resources department manages sales and other compensation software, other leaders and departments may also access the data depending on how permissions are set in the software. 

When looking for a sales compensation management software, hrlab.com recommends making sure the software fits the bill with:

  1. Stayin current with legal rules and regulations
  2. Workflow automation
  3. Compensation reporting

In addition, your sales compensation management software needs to be able to handle your different compensation programs, commission levels, and any nuances attached to your compensation, especially the sales compensation packages. 

Following these steps to creating a fair and realistic compensation plan with a compensation management process and ideally, a compensation manager overseeing it can help your business attract and retain long-term employees. Even in a competitive job market, designing and implementing a compensation package for hourly, salaried, and commission-based employees is sure to help your business for years to come. 

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