How to Write a Sales Compensation Plan

Salaries are among the main expenses of a company. To make sure a business tracks how much they are paying their employees, it needs to come up with a compensation plan. It is through this document that businesses will assess whether they are paying their employees adequately. The process for creating a sales compensation plan need not be complicated. We listed seven (7) steps you can follow so you can write an effective sales compensation plan that your team will be happy with.

1. Prepare a comprehensive list of employees and their positions  

It is important to work with only the employees you need to run your business. For instance, you might find that the duties of a telesales rep can be handled by other salespeople before going out to meet customers. If you cannot figure out who you need, check the positions similar businesses have. The list should help you decide whether to reduce or add employees. 

2. Write a job description for the different employees 

Have a job title for the different positions you listed above. Then, describe the daily activities for each post, the required experience, education level and skills. This list will enable you to compare what employees in other companies doing a similar job are paid. You also note the tasks that can be combined in order to avoid conflicting roles and unnecessary expenditure. 

3. Do a thorough homework on market compensation 

You could research job adverts to see the salary ranges companies within your area are quoting. Another idea is to approach businesses within the same industry as yours and ask them. Today, it’s possible to find valuable information using the internet. Online resources such as PayScale, and Glassdoor enable you to compare the pay range for various positions. 

Knowing the market salaries for each position enables you to set a reasonable pay for your employees. Consider a competitive compensation to attract and retain employees. Depending on the size or financial capacity of your business, you may choose to pay above market salaries to attract top talent.   

4. Consider employee overtime 

Not all positions will call for overtime. Nonetheless, if you have staff earning below $455 per week and you want them to work over 50 hours, you will need to pay them overtime. So, decide which employees should work overtime and budget for that when writing your compensation plan. 

5. Budget for incentives 

Sales roles can be draining. In most times, salespeople need incentives to push them into action especially when they feel demoralized. Incentives will also help you to sustain exceptional performance. You could decide to pay monthly commissions, annual performance bonuses, organize contests or offer other benefits. The choice of incentives to offer should be dictated by your industry, the specific roles of employees and business goals. 

6. Do not forget fringe benefits 

The various benefits you want to offer your employees should also be featured in your compensation plan. Each business has a different benefits scheme. These may include paid sick leave, life insurance, annual leave, health insurance, and so forth. Decide which of these you want to offer your workers and do some research to know the cost. This way, you can include the cost in your payment plan.  

7. Sum up the projected compensation cost 

Check the least amount it will cost you to pay employees by adding the minimum estimated pay for each employee. Remember to include the fringe benefits. Add the maximum estimated payment for each employee as well. These estimates should give you a salary range. Compare the numbers in both cases with your budget for salaries. You don’t want to pay your staff more than your business can afford.  


Any sustainable compensation plan should allow adjustments for when the business strategy changes, roles evolve, or market conditions change. Make sure to factor this when drawing your plan. You can also use these tips to design a compensation plan that all stakeholders can buy in.