5 Rules For Maximizing Comp Plan Buy-In

5 Rules For Maximizing Comp Plan Buy-In:

This is the time of year where many organizations are finalizing changes to their 2012 compensation plan for the sales force. While it can be a tricky time (as we must always be careful to avoid misunderstandings from the sales rep community around the new plans) – it really doesn’t have to be…

When it comes to structuring an effective compensation plan, the first thing to know is that communication can be even more important than the design of the plan itself.

The compensation plan will not be effective if reps do not believe that it is fair, and communication matters nearly twice as much as plan design in driving perceptions of fairness. In fact, in our research we found that Sales employees who believe pay processes are fair exhibit 60% more effort than those who do not.

(SEC Members, read more about the two key components of comp plan fairness, which your communications efforts should strive to emphasize.)

It’s also worthwhile to keep in mind that communications from the frontline sales manager community are two times as likely to positively impact sales employees’ belief in the fairness of pay processes than communication from the compensation function.

That said, from time to time, we still need to drive communications from the organization around compensations plans. So, here are five rules we see the best companies follow when looking to maximize sales force buy-in to the comp plan:

1. Consult the sales force on proposed plan changes. Take sales force input into account as you design compensation plans—especially star reps. Plans created “behind closed doors” are unlikely to obtain crucial sales force buy-in.
2. Communicate transparently. Be honest about your reasons for changing the comp plan, and explain what reps need to do differently to maximize their pay.
3. Empower first-line sales managers to have tough compensation conversations. As mentioned, Council research shows first-line managers are the most effective channel for communicating the plan. Manager communication is especially critical when bonuses are paid out and during plan changes.
4. Hold at least two formal compensation conversations per year. Council research shows that fewer than two conversations reduces perceived pay process fairness by 50%, while more than five conversations produces little incremental gain.
5. Focus conversations on the pay-performance link. Performance criteria used to determine pay is the number one topic managers should discuss. Actively reinforce organizational messages around performance expectations and pay potential rather than just current pay.

SEC Members, check out our newly updated topic center on Communicating Compensation Plan Changes for more detail on these five rules, as well as our Manager Guidebook for Rep Compensation Discussions.

What other rules do you follow when it comes to communicating comp plan changes?