Creating a global sales compensation plan

The world’s largest companies are increasingly looking to develop global sales compensation plans.
Speaking at the WorldatWork Total Rewards Conference & Exhibition 2008, John Bremen, global practice director – sales effectiveness compensation at Watson Wyatt, said that 99% of Global 2000 companies have sales forces and 90% of these have sales people outside their head office countries.
However, not all companies looking to manage sales compensation internationally are truly global companies.
Some are domestic companies with a few staff overseas, some are foreign-owned subsidiaries, some are multinational and a few are truly global. Several companies are only truly global at the very top level.
Bremen advised that compensation managers need to ask themselves: “where does consistency matter across locations?”.
“You don’t want to create a pay programme that is more global than you are. So the first thing you need to do is work out where you are. If you are not actually global then you don’t need a full global plan,” he said.
In addition, companies operate across countries that are at very different levels of economic development from emerging, growth to mature. If a company operates in many countries that are at different economic stages, it will need to run several different sales compensation programmes.
However, employers that do not run consistent plans across countries need to be careful how colleagues in different countries will perceive this inequity.
Key to the success of a plan is having clearly defined job roles. “If you don’t have the roles clearly defined, then your compensation plan will be a colossal disaster,” said Bremen.
For each plan compensation managers can set out key standardisations for local teams in each country to follow.

Aspects that can be standardised are:
∑ performance measures/metrics, for example: having profit measure, discretionary pay and so on.
∑ weighting rules, for example: stating that a profit measure must be less than 10% or more than 40%; or that discretionary pay cannot be more than 30%
∑ pay mix range: base versus variable.For example: stating that new business development managers get 40/60 base pay/variable pay; while account managers get a 70/30 split. This can then be tweaked by country.
∑ standardised plan type, for example: using commission.
∑ standardised by role, for example: all new business development roles in developing countries get the same sales compensation plan.

Aspect that cannot be standardised:
∑ standard pay levels – but you can standardise pay positions by percentile benchmarking.
∑ leverage (based on percentage profits of countries) because these vary too much.
∑ Standard weightings, for example: profit, customer services etc.
∑ Frequency of payouts – monthly, weekly, quarterly.

This list becomes the ‘dos and don’ts’ that create the guard rails to keep local teams on track when designing the details of the sales compensation plan in each country.
Bremen added that in fast-moving countries employers will have to revise pay 2-3 times a year. they should ask themselves: “does a six month stint with us change the employees market value?” You need to balance the value the employer is creating for the employee and the value the employer is creating for the employee.”
As with all global reward strategies, employers have to understand the impact local currency and local markets have. For example, total reward plays much bigger roles in sales compensation in countries outside the USA, or even the UK. “As we go around the world, we discover that the non-cash award is as important, if not more important than their cash reward,” added Bremen.

Report from Philadelphia, USA, Total Rewards Congress 20-23 May 2008.