Part 3: The Way You Compensate Impacts Your DEI Strategy

183:906269490 • November 21, 2023

Maintaining a Fair and Equitable Compensation Program

In parts one and two of this series, we discussed common misconceptions surrounding DEI and how to weave diversity, equity, and inclusion principles into your organizational documentation, systems, and processes. But creating an equitable workplace isn't a one-and-done project. Maintaining a fair compensation program requires ongoing diligence and adaptation.

While diversity, equity, and inclusion are interconnected concepts, the focus of compensation is most closely tied to equity and the inclusive participation in those pay programs at all levels of the organization. Equity in compensation means establishing fair, objective, and bias-free policies and practices for pay and rewards. By meticulously auditing pay gaps, benchmarking to market, and governing rewards programs, organizations can achieve pay equity across all demographics. In turn, pay equity lays the foundation for greater inclusion, as employees feel valued and experience equal opportunities regardless of identity and background. When the system is fair, inclusion and employee opportunities flourish.

Here are some best practices for administering and governing your compensation programs to support your DEI strategy over time:

Conduct Regular Pay Equity Reviews

While an initial analysis is critical for establishing a baseline, pay gaps can slowly creep back in if not monitored. Set a cadence (annually or biannually) for analyzing your pay data with a focus on gender, race/ethnicity, age, and other relevant demographics. Look at both base pay and total compensation, including equity, incentives, and bonuses. Be sure to review target pay levels as well as actual pay delivered. If gaps exist, investigate the root causes and develop action plans to address them.

Review Job Architecture and Leveling

As roles evolve over time, inconsistencies can develop. We don't always hire perfectly in conjunction with the growth of our organization, so people might take on tasks outside of their role or even begin doing a job that hasn't been formally created yet. Every 2-3 years, review your roles' job content and their placement in your job architecture to realign them to the organizational strategy and make sure they are properly documented and assigned to the correct pay range and level. This involves an assessment of the job in regard to market competitiveness as well as internal equity considerations.

At these reviews, it's a good idea to see if your organization would benefit from an architecture restructuring or if there are jobs that need to be moved. These adjustments keep your employees feeling like the organization is being responsive to market movements as well as the evolution of the demands of the job.

Audit Performance Ratings

Biases can influence performance ratings, impacting merit increases and promotions. Routinely analyze ratings data to uncover trends, including any notable differences across gender, race, age, etc. If found, provide managers with training and calibration best practices to mitigate bias in appraisals.

Beyond the ratings, it is appropriate to assess the processes, workflow, and technologies that are being used in the performance management program. A meaningful audit will consider each of these components to ensure no perverse biases exist.

Use Market Data

Market pay amounts shift, so staying current is key for equitable external alignment. Revisit your market pricing of jobs at least every other year using reputable survey data. Adjust pay ranges accordingly, ensuring equitable placement of the jobs with comparable value.

In some events, you may not be able to meet market pay. When you can't hire at median market pay, you may need to get creative and make some adjustments to the way you do work your job description, or your total compensation target.

With pay transparency laws becoming more prevalent in the U.S. and around the world, the days of keeping your pay ranges a secret are gone, which can be a challenge if you're struggling to meet market pay.

The exercise involves assessing the job with market data and then the employee's placement in the job's updated pay range. During these reviews, be sure to set aside a budget for wage rate adjustments for employees impacted by these structural shifts.

Review Incentive Plans and Payouts

Assess incentive plans and bonus payouts for potential disparities across employee groups. Ensure targets and quotas are realistic and attainable. Analyze factors impacting goal achievement to remove roadblocks and optimize earnings potential. Modify plans and metrics as needed to support equal opportunities.

Are there structural elements that are leading to significant underperformance or overperformance in one demographic or another? It's important to dig a little deeper and see if there are underlying problems with any particular metrics, geographies, or leadership discretion that lead to unbalanced outcomes.

Stay Current on Regulations

Regularly check federal, state, and local laws related to pay equity and compensation reporting. Update policies and practices to adhere to changing requirements. Being proactive helps avoid reactive scrambling and damages if found non-compliant.

Train Your Governance Committee

If you have a governance committee or team, train them on leading practices for equitable pay governance. Provide resources on mitigating bias, conducting analyses, designing inclusive rewards, and using compensation to enhance DEI. Investing in governance will ensure greater visibility of potential organizational vulnerabilities.

Allow Open Dialogue

Create channels for employees to safely voice pay concerns and have constructive conversations. Surfacing issues early allows for investigation and correction before problems escalate. Be clear about how pay decisions are made.

This starts with ensuring leadership is comfortable having pay conversations as well as an understanding of how the organization rewards its employees philosophically.

Document Decisions

Require managers to provide written justification for individual compensation recommendations, particularly any outliers. Well-documented decisions demonstrate your pay process is equitable and objective vs. arbitrary.

Documented processes and pay programs aid in this cultural expectation of clarity. Ensuring that the documentation is used and valued also helps to overcome the perception of added administrative burden and busy work.

Review at Turnover

When an employee leaves, examine their pay relative to peers to diagnose potential inequities to be addressed in the future. Doing so ensures pay gaps don't perpetuate as new hires enter at potentially inequitable rates.

Additionally, exit interviews are a useful tool to ensure compensation or perceived inequities are not a problem in the organization.

Tackling pay equity is an ongoing exercise requiring dedicated resources and commitment from leadership. While challenging, a fair and equitable compensation program allows you to actualize your DEI strategy through tangible practices that demonstrate the worth and belonging of all employees. By continuously reviewing and refining your pay policies and data, you uphold inclusion as an evergreen organizational value.

To learn more about building fairness into your sales compensation programs, download the Sales Compensation Fairness Checklist:

https://salescompguy.activehosted.com/f/15

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Structuring Timing for Maximum Success

By 183:906269490 • March 17, 2025

Over the past few weeks, we’ve delved into six crucial aspects of best practices in sales compensation: culture, financial due diligence, job content, pay mix, objectives, and plan mechanics. Each of these elements plays a pivotal role in shaping an effective and motivating compensation plan. Today, we turn our attention to another key component—timing. Defining Performance Period and Payout Timing There are two key aspects of compensation timing that affect how effective your compensation plan is at helping your organization reach its goals. These are: Performance Period : The timeframe over which sales performance is measured in the compensation plan—monthly, quarterly, annually, or per deal. Payout timing: The timeframe when a salesperson receives incentive earnings associated with their level of performance. While these concepts are distinct, they work together to influence sales behavior, business cash flow, and overall organizational success. Aligning Performance Period and Payout Timing with Organizational Objectives A well-structured performance period and payout schedule will reinforce your organization’s goals. For example, if you’re focused on rapid sales cycles and high transaction volume, you’ll probably use a shorter performance period and frequent payout timing to keep things moving along. On the other hand, if you’re prioritizing long-term account growth, large enterprise deals, or strategic selling, you’ll probably want to utilize longer periods (quarterly or annually) to encourage sustained effort and deeper customer relationships. Motivating Sales Teams with the Right Timing Salespeople are naturally driven by immediate, tangible rewards. If the gap between effort and payout is too long, enthusiasm may decline as the connection between work and reward weakens. On the flip side, overly frequent payouts—such as daily or weekly—could lead to transactional thinking rather than strategic selling. This is especially true when there are more frequent pay periods with very small amounts of pay. So before setting your performance period and cadence for payout, it’s essential to ask yourself what kind of behavior you’re trying to reward in your salesperson, as well as the sales function required to execute on your specific market and strategy. For long sales cycles where frequent payout timing simply doesn’t make sense, you’ll need to balance that by making sure your salesperson is aligned with organizational goals and that the salesperson is able to achieve meaningful levels of performance (as well as payout amounts) within that performance period. Best Practices for Performance Period & Payout Timing Choosing the right combination of performance period and payout timing is a strategic decision that shapes sales behavior and business outcomes. When well-designed, this timing structure maintains motivation, supports financial sustainability, and aligns sales incentives with broader company goals. A few best practices prevail: Align the payout to as close to the performance event (deal closing or otherwise) as possible, conditional on company affordability/sustainability Ensure that the performance period selected is closely aligned with the average sales cycle length. Generally, if there is a very short sales cycle, then a short performance period with quick pay is expected. That does scale up to very long sales cycles and longer performance periods with lesser payout frequency. Most organizations are somewhere in between. Be sure to recognize that it is specific to the sales role and not the company as a whole.

Plan Mechanics: Making it All Work

By 183:906269490 • March 3, 2025

In a way, we’ve already talked a lot about several components of sales incentive plan mechanics. We’ve covered the importance of culture , fundamental financial model ing, establishing job content , determining pay mix , and setting objectives . The next step will bring it all together. Some Important Sales Compensation Vocabulary We’ve previously described, at length, the two primary types of sales comp models (bonus plans and commission rate plans) as well as how to determine which plan best supports different sales roles. But there are a few other terms that are important to know when developing the underlying plan mechanics. The following list comes straight from my book Starting Simple: Sales Compensation . If you want a full but easy-to-understand breakdown of sales compensation, that book is the place to start. Accelerator--An increase in the rate of pay that occurs at a certain level of performance. Generally, this starts after the achievement of 100% of the target performance objective. Deal Cap--The maximum amount of pay on any single transaction Leverage--The sales incentive that would be paid out for performance between the target and the point of excellence. It is represented as a multiple of the target incentive Pay Curve--The slope of the line of the rate of pay throughout all levels of performance. Think of performance as the x-axis and payout as the y-axis. The pay curve represents the relationship between the two. In a fixed-rate plan, this is a straight line, representing a fixed rate of pay for every unit of measured performance (activity completed, dollar of revenue acquired, or percentage point of margin sold, etc.) Plan Cap--Maximum amount of pay under the construct of the plan Point of Excellence--The point on the pay curve that represents the 90th percentile of salespersons’ performance levels (should be greater than 100% of performance achievement) Rate of Pay--The amount of pay per unit of measurement. This encompasses the relationship between performance and payout at any point along the pay curve. Target--A point on the pay curve that represents 100% payout and 100% performance or (100%, 100%) Target Incentive--The sales incentive amount paid for achieving 100% of sales performance objectives Threshold--The point at which pay for performance starts. The threshold point should sit somewhere between 0% and 100% performance levels. It can be zero, which essentially means there is no threshold. Zero--The first point on the pay curve, represented by (0%,0%) for zero level of payout and zero level of performance Best Practices for Plan Mechanics A well-structured sales compensation plan aligns with your business objectives while keeping your team motivated. You need to balance risk and reward, ensuring that pay mix, thresholds, and accelerators drive the right behaviors. To evaluate whether your plan is driving the right behaviors, map your sales team’s performance along the pay curve—identifying where top, mid-level, and low performers fall. If most reps cluster near the threshold, the plan may not be motivating enough, while a heavy concentration at the high end could indicate overly generous payouts. A well-balanced distribution should show a clear progression, with incentives effectively encouraging continuous improvement and rewarding top achievers appropriately. Caps are controversial, and while they can help control costs, they can also discourage high performers. Accelerators, on the other hand, can be a powerful tool to motivate salespeople to exceed expectations. The key is to strike a balance—rewarding overachievement without creating unsustainable payout structures. Finally, sales compensation plans should evolve with business needs. In a future post, I’ll be talking about the importance of a regular review cadence for maintaining performance and fairness. When done right, plan mechanics create a system that doesn’t just pay salespeople but actively inspires them to excel.

How to Set Appropriate Targets

By 183:906269490 • January 31, 2025

Setting objectives is a constant balance between meeting your organizational goals and being realistic about the capabilities of your sales team. You want to be aggressive enough to reach revenue and profitability expectations as well as keep everyone motivated, but you don’t want to be so aggressive that your team feels it is impossible to succeed and just gives up. In part 5 of my Best Practices in Sales Compensation Series, we’ll go over some of the top things to consider for keeping your sales team engaged and successful. (Read Part 1 , Part 2 , Part 3 , and Part 4 ) When setting objectives for your organization, consider what you absolutely need versus the ideal you want; take into account the resources you have to work with (as well as the market situation and sales productivity); and create a target range ranging from easy to impossible—and place your target somewhere in the middle of that range. Types of Objectives There are several different types of objectives you might set for your sales reps. They can be sales process activities like making calls or qualifying leads. They can be progression milestones like hand-off triggers between internal teams or customer signoffs. But for our purposes, we’re going to focus on financial objectives such as revenue and profit. Best Practices for Setting Objectives Objectives need to align with organizational goals and provide achievable but challenging targets for the sales team. To accomplish this, consider these practices: Make sure that the salesperson has the ability to influence if not fully control, their capability to meet and exceed the objectives. Set realistic expectations. Unrealistic targets will stagnate your growth potential and give you a poor reputation with employees (as well as the labor market). Provide a clear and visible path to achieving the objective. Try to limit the quantity and types of objectives. More is not better. It’s better for a sales rep to be able to focus on a singular goal than to have their attention split in too many directions. Lastly, make a plan for what to do if your salesperson exceeds the target as well as underachieve target objective levels. These are just a few of the very important considerations in setting your objectives. Take some time to explore my blog or check out my books for a more in-depth look into sales compensation.

Getting Pay Mix Right

By 183:906269490 • January 14, 2025

Best Practices in Sales Compensation Part 4

Job Content is Foundational in Sales Compensation

By 183:906269490 • December 16, 2024

In my first Best Practices post, I talked about the importance of knowing what you can pay for your sales roles before worrying about what the market is saying. In my second post, I covered ways to utilize culture in a sales organization . The following Best Practice in sales compensation involves job content. Job content plays several roles in your compensation plan: 1. It gives your salesperson a guide to what success looks like in their role. 2. It gives you a guide to evaluating the performance of your salesperson. 3. It rationalizes differing levels of variable pay outcomes for varying performance levels. 4. It provides your organization with the structure needed to comply with any reporting, pay transparency, or other regulations. Hopefully, that’s enough to convince you of the importance of taking the time to define your new roles and revisit the definition of your existing roles. Now, here’s how job content actually does those things. Defining the job The first role of job content is to define the who, what, where, when, and how of the function. It can be tempting to borrow a job description from LinkedIn, Glassdoor, etc., with the assumption that the content will be similar enough to fit your needs. However, the way a specific role performs is unique to the organization it’s acting in, which is why it’s important to take the time to define the job from scratch. Here are the questions you should be answering in your job content: What does the person need to do on a daily basis? How does this individual pursue sales, and in what segment or with what type of customer? Where should they focus their time and attention when building a pipeline of deals? Who should they be interfacing with, both internally and externally? When do they engage with customers and/or prospects? What portion of the sales process do they own or support? How do they interface with and influence decision-makers? Now, even though I said to write your job description from scratch, that doesn’t mean this is the time or place to get too creative. Job seekers are going to be searching by job title or category, so it’s essential to stick to the common vernacular regarding industry jargon and expected job titles. Job Description: A Byproduct of Job Content Another positive outcome of creating job content for your roles is that you will have generated much of the information needed for a job description if or when you’re ready to hire. Information such as: Job duties and responsibilities that clarify the type of work and engagement with customers. Qualifications/Requirements that are both minimum and desired. Those include education, knowledge, skills, capabilities, and competencies. Performance measures of the role include items like achieving sales targets, new logo acquisition, development of pipeline, accuracy in forecasting, etc. With all of this information on file, it will not only be easier for you to prepare to hire for the roles you want, but it will also be easier to evaluate existing employees in those roles. Beyond all of that, you’ll be well prepared for competitive market research and establishing your variable pay program. I’ll be posting more best practices on the blog, but if you’re anxious to dive deeper into the subject of sales compensation, you can grab a copy of my book Starting Simple: Sales Compensation and consider working through the companion Workbook to build a sales compensation plan from scratch.

Sales Comp Guy