Sales Compensation

How do you define fairness in sales compensation?

By Richard Smith

Aug. 7, 2020 | Article | 3-minute read

How do you define fairness in sales compensation?

Fair: Marked by impartiality and honesty: free from self-interest, prejudice, or favoritism – Merriam Webster’s Collegiate Dictionary


Fairness is something that nearly everyone who works in the sales compensation industry strives for while designing an incentive plan. We want the plan to be motivational and therefore want the sales professionals working under its terms to feel as if they’re being treated fairly. As I’ve written in a previous blog post, the first step is to define performance: What do you want to reward? But this is only the first step. Once you’ve agreed as an organization on what you want your sales employees to accomplish, and have set that as the expectation, you need the field to buy in. You want them to be motivated to strive to meet the plan’s requirements.


The next step is to design a fair plan that helps all members of the sales force meet the organization’s objectives. Using the definition above, a fair incentive plan would need to satisfy two criteria: Is it impartial, and is it administered honestly? That is, has communication of the plan and the strategy behind it been transparent and comprehensive? Does everyone believe they have an opportunity to be fairly rewarded?


To ensure impartiality, there are often a variety of tests that we, as plan designers, will run to check for biases. We will look for things like correlation of sales performance to historical sales performance, an individual’s market opportunity and geographical location. These tests help us confirm that the plan is paying for a salesperson’s effort and ability, not the territory they happen to work within. But it’s easy to get lost in the numbers. Analysis paralysis will often follow as we get hung up on trying to create the analytically perfect plan. Is this necessary?


Striving for fairness is right, but does perfect fairness matter to the sales employee? Or are they served just as well, if not better, by perceived fairness? Will they be any less motivated by a plan with slight inconsistencies that are not visible to them, but is laid out in a clear, concise and honest fashion? The answer is likely no.


This brings me to the second part of the definition above. Perhaps more important than impartiality is honesty. Often, incentive plans become increasingly complex as more and more components are added to incent every possible activity/product or to increase the perception of fairness. This will often have the unintended consequence of creating a plan that lacks strategic focus and is difficult to understand. Instead, creating a plan that is directionally fair, can be viewed as fair by the sales team and addresses the core underlying strategic objectives of the company will better serve everyone involved. An employee does not need to have the exact same opportunity for potential earnings to be satisfied with the potential they have. If we simply stated that we recognize the plan may not be perfectly fair for everyone, but that it provides everyone with an opportunity to earn while focusing on our core strategic objectives, the plan will likely still be motivating.


Fairness will become increasingly important in a world impacted by the COVID-19 epidemic. Many sales employees are no longer in the field working their territories or may be restricted to working with customers remotely. Others are still able to meet with customers. Not all of those currently restricted will return to the field at the same time. Ensuring they feel they are being treated fairly now will help them remain committed and motivated as things begin to progress toward normalcy.


A critical part of fairness is the perception of fairness. No matter how balanced the plan might be, if no one believes the plan is fair they won’t be motivated. To create a plan that can be seen as fair, it must be transparent, with no hidden agenda, simple, easy to understand and well communicated. First line managers should be educated in advance so they can answer questions from their reports.  Documentation should read less like a legal document (though in many ways it is) and more like a reader’s guide to the bonus program. Finally, at every point of communication, the response should be accurate and honest.


Adhering to the definition of fairness will reduce stress on the field, in turn motivating them to sell as they do not need to worry about their ability to earn, and reduce stress on those who need to implement the plan. The field will have fewer questions and concerns and should be more motivated by their incentive plan.