Praxis Blog

Who Owns the Sales Compensation Program?

Richard Lenahan - Friday, June 29, 2012
A well thought-out and agreed-upon governance plan is key to designing and administering an effective sales compensation program. Equally important is clearly documenting the details of the plan to prevent unnecessary misunderstandings and conflicts down the road.

Unfortunately, in many companies – large and small – the oversight of the program is not well understood, articulated, or documented. In some firms, it’s almost as if the understanding of who “owns” various parts of the sales compensation program is passed down from employee to employee like so much folklore.

Here are some questions to help guide the development of your sales compensation governance plan:

Who is responsible for designing the plan?
Every company is different, but developing a shared understanding of which organizations play a role in the design process is central to the governance plan. Which organizations have decision-making authority and which are in an advisory capacity? What role does the sales organization play? Do the people who administer the plan have a seat at the table? Does any person or group have veto authority?

What is the process for making changes to sales compensation plans?
Sales compensation plans need to be flexible enough to adapt to shifting internal priorities as well as changes in the competitive marketplace, so there will be times when the program has to be modified. Is there is a documented change management process for modifying elements of the sales compensation program? Who has final sign-off authority?

Are the policies governing the sales compensation program documented and up-to-date?
As sales compensation plans are evolve and new leadership is introduced, policies are often changed with little corresponding documentation. Even if an attempt is made to update the policy manual periodically, is there an agreed-upon and articulated process for keeping the documents up to date with current policies?

How are disputes handled with sales people?
Is there a published step-by-step process that sales people follow when they question a policy or believe there is an error in their calculations? Is there a clearly understood escalation and appeals process, with timelines and approval authorities? Where does the “court of last resort” reside? Is binding arbitration a consideration?

What about “Sarbanes-Oxley” and “Dodd-Frank”?
Sarbanes-Oxley was enacted ten years ago in response to massive corporate malfeasance in the telecommunications, energy, and financial services sectors. Because it addresses such topics as separation of duties and conflicts of interest, and it be considered when building a sales compensation governance plan. The compensation provisions in the more recently-enacted Dodd-Frank act have more to do with executive compensation. 
Developing a sales compensation governance plan does not have to be a complicated drawn-out process. Often, it is simply a matter of documenting the shared understandings that are already in place. Other times, a series of meetings need to be facilitated with senior executives and key stakeholders to forge agreements, confirm understandings, and articulate the key elements of the plan.

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