What is a sales compensation committee and what do they do?
Compensation committees are common but massively underutilized in large organizations. This function is uniquely positioned to drive business objectives forward by aligning and optimizing the sales compensation process.
What is a compensation committee?
A compensation committee is a group of internal stakeholders responsible for overseeing the planning and analysis of the sales incentive and executive compensation plans.
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Compensation committees are mostly only seen at large, publicly traded companies with a legal commitment to perform financial and operational audits and compensation risk analysis.
What is the purpose of a sales compensation committee?
In theory, a compensation committee has several purposes:
- To ensure that the compensation strategy aligns with business goals
- To ensure that the commission plan structure is fair and represents value
- To ensure that the compensation plan adheres to all applicable laws
- To ensure that the compensation plan does not expose the organization to adverse material risk
The reality is that many compensation committees spend their resources reviewing and approving the executive compensation plans and rarely concern themselves with the general sales comp plan.
Who should be on the compensation committee (and shouldn’t)?
A sales compensation committee should have representatives for all internal stakeholders in the compensation plan and independent third parties to ensure unbiased auditing. That involves a lot of departments across the organization:
- Sales & Sales Ops
- Incentive Comp
- Human Resources
- Legal & Risk
- Senior Management
- Board of Directors
- Public shareholder representatives
This is an idealized scenario roster. The reality is that most organizations don’t put much effort into building or funding their compensation committee.
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Often, many stakeholders are omitted from the committee in favor of external consultants and Board members.
To our surprise, the stakeholder most commonly left out of the incentive comp planning and approval process is the sales comp team — the people implementing the plan.
This top-down approach to sales comp design causes many issues because often, the changes do not account for nuances in the plan’s architecture; things can’t be changed without impacting other rules in the program.A top-down approach to sales comp planning and design causes a host of issues because the people who understand how all the parts of the program fit together and are responsible for implementing it are rarely involved in the planning process. … Click To Tweet
That causes delays and errors and will even result in the new incentive comp plan or its changes being completely abandoned.
Compensation committees are a great opportunity to prevent this from happening. A lot of hassle and wasted time can be avoided by aligning all the stakeholders and ensuring those creating the strategy understand what is and isn’t possible in the current system from the start.
Why should companies have a compensation committee?
Besides improving the efficiency of the IC plan operationally, as described above, dedicating resources to a compensation committee will help the IC program drive the business goals more effectively and bring greater returns.
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Even companies that are not required to could benefit from having a compensation committee because it would help prioritize the improvement of the plan and its operation.
Sales Compensation Committees Are Worth the Investment
Compensation committees are an important but often sidelined function.
Many enterprises miss out on a huge opportunity to improve their incentive comp processes and efficacy and drive the business forward.
Revenue Operations has emerged partly because of this ongoing misalignment between departments around core processes, like sales comp.
A compensation committee is a great opportunity to bring together stakeholders from across the organization to ideate and initiate improvements that drive everyone’s goals forward. To learn more about how Forma.ai’s next-generation sales compensation management software, book a demo here.