Do You Trust Your Commission Statement?

By Chris Lott | Sales | 956 Views | 3 Comments    

The quickest way to demotivate a sales team member is to screw with their paycheck. Yet so many times a company will build a compensation plan and commission statement that leads to this. They are outdated, vague, confusing, assuming trust with numbers, and so on. Why?

 

RELATED  Sales Process Gone Wrong.

 

It is imperative that this never happens. Here is a basic outline of a compensation plan with some reasons things get iffy on commission statements.

Sales Compensation Plans.

Sales compensation plans are built with company goals in mind. If designed correctly they should be a motivator for the sales team members as well. A win-win. Here is a very basic outline of traditional sales compensation plan components and where things can go wrong.

  1. Company sales strategy. What the business direction is, and what the business is trying to achieve. – Sounds great until a commission statement is off. Then the goals of business and salesperson seem to part. Trust will need to be earned again to get the sales strategy to work for both parties.
  2. Performance metrics. Benchmarks and performance metrics are to help guide the sales force in terms of company focus. – If these measurements are not clear, and most of the time they are not, then commission statements are subject to misunderstanding.
  3. Payout. What’s in it for the sales pro. The payout formula lays out how they will be paid in terms of straight compensation and/or commission for sales. – Companies can design complex algorithims Einstein couldn’t understand. Not only does this make room for error but also misunderstanding in the commission statement.
  4. Questions and conflicts. Needs to cover how they will resolve questions or conflicts over sales compensation. – Typically they only cover what they will chargeback (claw back) when and why. This can be vague and leaves a lot of room for commission statement errors.

You can see quickly that if a compensation plan is not designed properly it is going to reflect in a flawed and non-trusted commission statement. Then there are these red flags.

Commission Statement Red Flags for Mistrust.

Here are just a few of the complaints I have dealt with on commission statements. You could probably add a few more.

  1. Compensation plans built on deal profit with no data backing up the number. At least nothing presented to the commission salesperson.
  2. Salesperson’s sold dollar amount for the commission period not even close to accounting and possibly their direct manager’s numbers. This is assuming that they have the data needed to make this judgement.
  3. No communication chargebacks. Someone else made the decision to unwind/change a deal without their knowledge.
  4. Ever-changing dates on qualified payouts. While this is most likely documented on why many times the sales professional is left out of the loop on the delay.
  5. “Ooops! I forgot that one. We will pay out on the next commission date”. How many others have they forgot?

We Can Do Better!

Sales performance can definitely be affected by a lousy commission statement. With better communication and clearly laid out plans, commission statement trust can be earned. If a company can’t disclose the data simply then maybe a new compensation plan should be reviewed. Companies need to recognize the importance of a commission statement in their sales team success. They need to make sure it is something that can be scrutinized and trusted.

Have you had any experiences with not trusting your commission statement?

© 2006-2018 SalesBlog! | Photos courtesy of 123RF | Posted on

 

Chris Lott has this crazy creative side that motivates him to design websites and write articles. He's a disruptive technologist and is passionate about sales, family, and anything related to technology. See what others are saying about his work!.

 

3 thoughts on “Do You Trust Your Commission Statement?

  1. Calculating commission payments is a complete nightmare. They eat admin time and make work for managers and add to the cost of selling. We had this problem some years ago and came up with what some people called a crazy solution Why was it crazy? Well we let the salespeople claim their commission, after all they know exactly what they are due, and paid what they claimed straight away. There was one caveat. We said that we would pull one claim every month and if the person was dishonest they would be fired on the spot. The result was that no-one was fired, the amount of commission paid was reduced, wasted time disappeared and the sales force was highly motivated because they were trusted.

  2. Hi

    Great article. I have this very issue and have had for some time.

    Not all the sales team are vocal about this in my company. Do you have any ideas / strategies for challenging this types of issues without rocking the boat too much?

    Do you have any tools I can use besides a basic spread sheet to sense check my company’s formulas and their commission statement?

    • Stanford,

      A couple of things come to mind… If you feel like you’re getting taken on your plan then maybe a change is in your near future? I personally will not work for someone that I don’t feel 100% confident with their math. You should never feel that challenging a commission statement would put you on a “rocky boat”. If you google – sales commision tools – you should have some choices to look at. I use a spreadsheet typically. If I have a correct understanding of my plan then my commission numbers should be close if not exact with accountings. If not, question away. If they won’t work with you something is fishy. Good Luck!

Leave a Reply

Your email address will not be published. Required fields are marked *