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were negated when the price of the product collapsed Terminate the old plan and redesign a new plan to match the company s new market dynamics Sample Quota Distribution Policy: The summation of all quota assignments should equal the company budget forecast Quota distribution targets two-thirds of all sales personnel for a job to reach and exceed quota, and one-third not to reach quota Your Quota Distribution Policy:
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Performance range specifies the low and high spread of performance for payment purposes The low point of this range represents minimal performance where performance below this level should not receive incentive payment The high point of this range represents excellent performance where outstanding performance should receive outstanding pay such as 3x leverage The performance range of a measure differs from one measure to another, from one job to another, from one company to another, and from one industry to another As an example, the performance range for an established consumer product is normally very narrow Salespeople will find it unlikely to sell above 105 percent of goal Likewise, the chance of falling below 95 percent of goal is also remote Mature consumer products have a very predictable and narrow performance range However, new growth industries might have a very wide performance range As an example, sales of 200 percent over goal might be the norm for exceptional performance while 50 percent of goal might be considered typical minimal performance Each performance measure has its own performance range Sales management can best determine the performance range for a given measure by examining its historical range In Figure 2-9A, the performance range is from 70 to 145 percent Low performers (10th percentile) perform at or below 70 percent to quota Excellent performers achieve 145 percent of quota where the
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70% Threshold
100% Target
145% Excellence
Performance Range
Figure 2-9A Performance Range Example A
Sales Personnel Distribution
10% or Less
10% or Less
80% 100% Threshold Target
120% Excellence
Performance Range
Figure 2-9B Performance Range Example B
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top 10th percentile will perform and should receive outstanding pay In Figure 2-9B, the performance range is 80 percent for low performers and 120 percent for excellent performers Sales management needs to identify the performance range for each measure in each sales compensation plan As we learn later, we will use this information to build the sales compensation formula rates Sample Performance Range Policy: Threshold and excellence performance levels will be set for each performance measure Threshold reflects the lower 10 percent of performance, and excellence represents the top 10 percent of performance Your Performance Range Policy:
Performance and Payment Periods
Performance periods and payment periods work together Sales management sets the performance period for each formula measure the length of time between performance measurement periods This window of time can be a week, month, quarter, or even as long as a year Shorter sales cycles generally have shorter performance periods; longer sales cycles generally have longer performance periods Payment periods define when incentive payments occur Normally, the performance period and the payment period are the same, for example, measured and paid quarterly Additionally, performance and/or payment periods can be discrete or cumulative
Discrete: Discrete performance/payment periods stand alone for measurement and payment purpose For example, a sales compensation plan that pays monthly discrete treats each month as a standalone measurement and payment period No previous or future month s performance will affect the payout for an individual month Use less than annual discrete measurement periods when sales cycles are short and sales personnel have no flexibility or selfserving motivation to move orders from one period to another
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Q1 Discrete Measure Period Pay Period Cumulative Measure Period Q2 Q3 Q4
Pay Period Measure & Pay Q1 Measure & Calculate Q1 to Q2; Subtract Q1 Payment Measure and Calculate Q1 to Q3; Subtract Q1, Q2 Payments Measure and Calculate Q1 to Q4; Subtract Q1, Q2, and Q3 Payments
Figure 2-10 Performance/Payment Periods
Cumulative: Use a cumulative performance/payment period when you want the salesperson to be paid at more frequent intervals than the ultimate measurement period As an example, paid quarterly on cumulative year-to-date performance provides payouts each quarter based on year-to-date performance
Figure 2-10 displays both discrete and cumulative performance measurement and payment periods As the cumulative period to date performance/payment periods demonstrate in Figure 2-10, the salesperson always carries the responsibility for year-to-date performance even though payouts are being made on a quarterly basis Each quarter, the year-to-date performance and incentive are calculated To make the quarterly payments, any previous quarterly payments are subtracted from this year-to-date amount before the final payment for the quarter is made A sales compensation plan might have several formula components Some might be paid with a discrete performance/payment period while others might be paid with a cumulative period-to-date performance/payment period
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