Sales Incentive Program Design

Writen by Andrew Rowe

There is a process for developing sales commissions with respect to overall sales compensation that can be followed. The principles are quite easy. The variables include the amount of base salary that you pay to an individual (if any), and the percentage of total compensation that base salary represents in relationship to the incentive program itself. Some companies pay zero base salary and a straight commission on all sales, and allow their sales people to have a draw against that commission for a certain period of time (we don't recommend this – it tends to degrade the perception of the position to potential candidates, and put your company at the bottom of the food chain as a potential employer). Other companies pay a very high base salary and a low percentage of total compensation as incentive. Many companies also target a base versus incentive at about a 50/50 split.

Which program your company is going to choose is largely dependant upon a couple of factors. First of all, what are the technical and domain requirements of the sales representative that you're looking to hire? If there is a very high level of technical understanding and advanced training required in order to put a sales representative on the street, you're going to want to pay a higher base salary in order to attract that kind of individual to your company. Where there is very low level of technical or advanced training competencies amongst sales representative, typically that is where you can afford to pay a lower base package and put more of the compensation at risk. So, base compensation is usually a function of experience. It's also a function of the competitive landscape in the particular industry that you're in for hiring good sales representatives.

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