Good sales compensation plans are the atmosphere, the oxygen, that an organisation breathes on its sales team. Good sales people will always be drawn to the organisation that offers the most generous compensation plan. At the same time, designing and maintaining sales compensation plans in today’s regulatory environment is a maze of obstacles. What is required?, rules from multiple regulatory specifications?, deadlines and deliverables?, and How will performance be impacted? Most importantly, how can we design and administer sales compensation programmes to be transparent and compliant – with as little damage to the company’s sales performance as possible? We will explore answers to these key questions.
Table of Contents
- The Complexity Unveiled
- The Challenge of Interpretation
- Striking the Balance: Compliance and Performance Optimization
Frequently Asked Questions : Addressing Common Concerns
1.How can I ensure my sales compensation plan complies with relevant regulations?
2.What are the consequences of non-compliance with sales compensation regulations?
3.How can I optimize sales performance while maintaining compliance?
4.What role does sales leadership play in ensuring compliance with compensation regulations?
5.How can technology aid in compliance and performance optimization?
The Complexity Unveiled
Sales compensation plans can be complex mechanical structures, combining commissions, bonuses, incentives and base salaries together to incentivise behaviours and outcomes, overlaid with additional requirements and restrictions from time-and-a-half under the Fair Labor Standards Act or anti-kickback prohibition from the Dodd-Frank Act, which governs financial products and services, or unique industry compliance requirements.
Take, as an example, a drug manufacturer that wants to motivate its sales force to promote new drugs while meeting very specific compliance standards that apply to the way that members of the sales force can promote products, as set by the Food and Drug Administration [FDA] and other regulatory agencies. In this particular case, designing a compensation plan responding to the sales objectives while complying with the regulatory constraints is a real challenge.
The Challenge of Interpretation
Interpreting and applying these rules to incentive plans is something like walking a minefield. Consider this:
1.Ambiguity: Regulatory text – because of reasonable doubts about its meaning and how to implement it – provides ‘cover’ for non-compliance.
2. Mixed Signals: Conflicting obligations from different regulators might apply, as organisations operating across multiple sectors or jurisdictions are likely to find.
3.Moving Target: There will always be new laws and amendments to old laws, and the interpretation of our legal system by the courts will also constantly evolve. Ongoing adaptation of compensation plans will be needed to comply with new regulations.
Example: an international technology company that needs to ensure its data privacy practices (in adherence with the GDPR in Europe, for example) and the design of its sales compensation plans (so that they comply with local labour laws in its international offices). Iterative design and administration integrity become more complex or ‘layered’ with each different jurisdictional requirement.
Striking the Balance: Compliance and Performance Optimization
At the core of good design in sales compensation is the push and pull between compliance on the one side, and performance on the other. Organisations can accomplish this through the following:
1. A holistic approach: build compensation programmes that reflect not only your mandates from regulated bodies, but also your objectives as a business, by: 1) bridging the worlds of legal and compliance with the ways of working of our sales and HR functions.
Ensuring transparency means communicating to sales teams, for example, the specifics of compensation structures, performance metrics, and compliance rules; educating them as to why it is in the sales team’s and firm’s best interests to operate compliantly.
2.Continuous monitoring and adjustment: Set up robust monitoring mechanisms to check whether activities are in agreement with regulations and how performance is tracking in respect of targets; and adjust compensation plans on a regular basis as gaps on compliance become apparent, or as situations on the ground require.
e.g., A financial services company reviews its compensation packages each quarter to examine profit and sales data and legal changes that affect the company and its industry. Reviewing processes proactively enables the company to address compliance issues before they become full-blown.
3. Adaptable and changeable: design reward packages that can change with the regulatory landscape or focus of the business This means the program can change over time to fit changing requirements from regulators or the market.
For instance: An automotive manufacturer modifies its incentive system for sales’ personnel based on changes in regulations regarding the emission of exhaust gases, favouring the sale of environmentally friendly model vehicles while being subject to environmental standards.
4.Technological Investment: Utilise technology solutions such as sales performance management (SPM) software to automate compensation calculations, manage compliance and track real-time sales performance metrics.
Example: An SPM software solution allows a software company to automate incentive calculations for salespeople based on their sales performance data in accordance with regulatory parameters – reducing the error-proneness of the process and making it compliant with complex software licensing and sales practice regulations.
Frequently Asked Questions : Addressing Common Concerns
1.How can I ensure my sales compensation plan complies with relevant regulations?
Ans1: Do your homework. Understand the specific regulatory requirements that apply to your industry and your jurisdiction (and seek professional legal advice where necessary) and then write rules that govern your compliant approach to rewarding employees.
2.What are the consequences of non-compliance with sales compensation regulations?
Ans2: The non-adherence can invite legal action, financial penalties, reputation damage or loss of consumers’ faith and support, putting at perils the business viability and growth.
3.How can I optimize sales performance while maintaining compliance?
Ans3. By linking incentive structures to strategic business objectives; promoting a culture of ethics and compliance; and using data to inform more effective, compliant and efficient compensation plan design.
4.What role does sales leadership play in ensuring compliance with compensation regulations?
Ans4: Sales leadership is the enabler of compliance initiatives, as it provides guidance and air cover to the field (sales teams) and communicates compliance principles as a critical part of the culture of the organisation; it sets the tone for everyone in the organisation.
5.How can technology aid in compliance and performance optimization?
Ans5.Technology solutions which provide incentive calculation and automation through SPM software, recording of desired sales performance metrics, and ensuring compliance with regulatory requirements are vital for organisations to strive for compliance as well as performance. It can be highlighted by the complexity of a sales compensation plan. It is hard, for example, to balance the rules and regulations with performance when designing a sales compensation programme. Nevertheless, by adopting a strategic approach to sales compensation that mixes the four Ss – collaboration, given the proliferation of channels; transparency, as the tribes share information; agility, as players have to be quick; and technology, as a platform to enable all of the above – the balance between compliance and performance can be achieved for a sustainable growth and success of an organisation.
