Governance of sales compensation programs is becoming more important at companies throughout the world. Poor governance can lead to disengaged salespeople, perceptions of unfair treatment or even lawsuits. So how should you make your governance process more rigorous?
Let’s first start by defining what exactly governance is, and what a governance committee does. At its simplest, a governance committee’s role is twofold: it’s tasked with plan design oversight and plan exception review and approval. More companies than ever are creating a committee to ensure that all business units and sales forces globally are creating sales compensation plans that follow global guidelines and best practices. When left to local leadership, we have seen sales compensation plans that are not:
- Results based
- Auditable
- Aligned with best practices
- Fiscally responsible
- Aligned with company goals
With the realization that sales compensation can be 5-10% of revenue (depending on your industry), companies are ensuring (and rightly so) that that spend is optimized globally. In addition to ensuring solid plan design oversight, governance committees also review and approve all exceptions globally. The objective in this is to:
- Ensure everyone is treated fairly
- Apply the same criteria to all exception requests
- Have a rigorous process that the sales force can believe in
- Avoid “making people whole” simply because they did not achieve their quota
A governance committee usually consists of a broad group of leaders, including members from sales, sales operations, the HR/compensation department and finance. This multi-functional group ensures all viewpoints are considered when arriving at a fair and consistent decision on the exception. The committee meets as much as needed, at least quarterly and sometimes monthly, to ensure optimal sales force motivation. The more frequent the payouts and the higher the exception volume, the more frequently the governance committee should meet.
If you don’t have a governance committee to manage sales compensation plan design and exceptions, you need one. Companies spend too much time and money creating and implementing sales compensation plans not to ensure they’re running optimally.
If you do have a governance committee, but it’s limited in scope or effectiveness, it is time to redesign the committee. Start from scratch, identifying the key functions that must be represented to arrive at fair and reasonable decisions. Obtain sign off from senior leaders (not just the chief sales officer, but the COO or CFO as well) to ensure that the committee has the power to make the right decisions for the organization.
The wave of governance process changes is here. Join in.
