Sales

Sales Comp Winners: Hurdles, Modifiers, and Matrices

Special from WorldatWork Total Rewards 2013, Philadelphia

Hurdles, modifiers, and matrices are basic building blocks of sales comp programs, says consultant David Cichelli, CSCP. Each is suited to a different situation.

Cichelli, who is senior vice president of the Alexander Group, offered his tips at WorldatWork’s Total Rewards 2013 Conference and Exhibition, held recently in Philadelphia.

Hurdle

The hurdle is a prerequirement measure, says Cichelli; that is, the first measure must be accomplished before favorable treatment of a second measure can occur.

The employer establishes a minimal requirement for the first measure. Then the approach is a binary on/off one, Cichelli says.

Example: Commission with Hurdle

After salespeople reach 100% of quota, their commission rate rises. However, all three products must be at least 95% of goal before second rate (over 100%) becomes effective for any of the products.

So, here, if the salesperson exceeds quota for product A and B, but sits at 80% for product C, no higher commission rates will be applied for sales above quota for products A and B.

 

Sales Volume
(Percent of quota)
Commission Rates
(Percent of Sales Dollars)
  Product A Product B Product C
To 100% 2% 8% 5%
100% and over 4% 12% 7%

 



Modifier/Multiplier

With this approach, there is a posttreatment of the primary measure. That is, the first measure payout is affected by performance on the second measure.

The important distinction here is that performance on the second measure can increase or decrease earnings of the first measure.

The employer can calibrate the pay range depending on the desired outcome, Cichelli says.

Example: Commission with Multiplier

Commission

Volume Rate
Up to $3M 2%
Over $3M 3%
 

X (multiplied by)

 

Gross Margin Modifier

Percent of Commission Earnings

Gross Margin Percent Modifier
≥30% 125%
20% to <30% 115%
10% to <20% 100%
5% to <10% 75%
<5% 50%

 


Example: Bonus Formula with Product Modifier

In this case, the new monthly volume bonus commission is 1% on target monthly volume, which jumps to 3% for volume over target.

Then, along with that is a quarterly Product Mix Bonus for Major Emphasis Lines (MELs).

# of Product MEL Goals Reached Percent of Quarterly Incentive
5 35%
4 20%
3 12.5%
2 5%