Sales Compensation Management Glossary

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ASC 606 Standard
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Also known as Revenue Recognition Standard, ASC 606 is basically an accounting standard that establishes that revenue should be recognized when a company meets its obligation by providing the promised goods or services to a customer.

A
Accelerator
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An accelerated commission rate that kicks in when a rep hits their quota. For example, a rep makes $20,000 if they hit their quota of $200,000. The base commission rate is 10%. If the rep crosses the $200,000 mark, the rate accelerates to 15%. Companies will typically use accelerators to reward higher performance and motivate reps.

A
Account
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A business that buys from the company. It also refers to a prospective business that may buy from the company.

A
Accrual
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Money that has been earned or spent, but not yet paid. It is basically a tab of what is owed. Think of it this way, a payment from a customer is yet to come in. Or, a company is yet to send out a payment to an agent.

A
Annual Recurring Revenue
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Predictable revenue a company expects to generate annually from existing customers.

A
Annual Wage Adjustment
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Automatic increases or decreases in wages over a period of one year. These adjustments are usually made in accordance with a specific plan formula.

A
Attainment
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A measure of how a sales rep has performed against their quota. Attainment is expressed as a percentage. For example, if a rep sells $10,000 and their quota is $20,000, their attainment would be 50%. If they sell $20,000, their attainment would be 100%.

A
Base Pay
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A fixed amount paid to a rep exclusive of other forms of payments and benefits. 

B
Best Practices
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Proven techniques, methods and practices that work. They are usually set as the standard and most reps and sales leaders would choose to follow them to reach their targets.

B
Bluebird
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An unusually large-scale sale.

B
Bonus
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They are essentially fixed amounts paid to reps when they reach specified targets. They can be paid on a monthly, quarterly, bi-annual and annual basis depending on the organization’s goals. Some companies also give bonuses to entire departments in order to achieve broader goals.

B
Channel
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Medium for distributing products or services to the market. Companies may choose to sell directly (through websites or their salesforce) or indirectly (through brokers and agents).

C
Clawback
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Taking back compensation if the sale is cancelled or not paid for. The recovered amount is deducted from future payments.

C
Commission
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Variable incentives paid to reps based on their performance. Some commissions like Straight Commissions are quite easy to understand and manage- A sales rep is paid a pre-decided percentage of the revenue generated from every deal that they close. While others like Residual Commissions- a sales rep keeps on getting a percentage of the revenue generated as long as the client is associated with the company- are more complex and need a multitude of resources in order to be managed properly.

C
Cross-sell
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Selling a complementary product to an existing customer.

C
Customer Relationship Management (CRM) Software
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Helps a company’s interactions with customers, clients and prospects. Examples of CRM software would be Salesforce, Microsoft Dynamics 365.

C
Dashboard
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Primary performance numbers that sales managers track.

D
Decelerator
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The opposite of an accelerator. The decelerated commission rate kicks in when a rep fails to hit their quota. For example, a rep makes $20,000 if they hit their quota of $200,000. The base commission rate is 10%. If the rep fails to cross the $200,000 mark, the rate decelerates to 5%. Decelerators are used to penalize poor performance.

D
Draw
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The amount of money a rep can borrow from a business. This amount is borrowed against their future income.

D
Forecast
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Mostly refers to a sales leader’s prediction of sales results after analyzing opportunities in the sales cycle.

F
Gate
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A qualifying point in an incentive compensation plan that opens the door for another payout. For example, reaching a $10,000 target can be a gate for a sales rep for a bonus.

G
Guarantee
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Minimum amount guaranteed to new sales reps- regardless of performance- to make sure that they have enough to sustain in case their sales does not generate enough commissions.

G
Hierarchy
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Reporting structure within an organization. It can be based on skill sets, seniority and commissions. For example, reps might report to their sales manager. The sales manager might report to a regional sales manager. Hierarchies may also represent the relationship between two entities like two products or two regions.

H
Incentive Compensation
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Incentive Compensation is basically performance-based compensation – exclusive of the base salary that a rep might receive – and is directly connected to the reps’ goals and milestones. When managed and implemented properly, an Incentive Compensation plan will tell the rep in clear terms what they need to do in order to earn more. By setting clear and realistic goals for sales reps, an ICM drives them and the company towards profitability.

I
Incentive Compensation Management
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To put it simply, ICM is the strategic process of creating and implementing an incentive plan that works. For instance, an IC plan built for success will ideally- 

  • Improve your forecasts
  • Align rep behavior with your company’s goals
  • Empower your reps to earn more and provide them upward mobility
  • Contribute to better customer interaction and service
  • Reward top performers

I
Key Performance Indicators (KPIs)
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Measures used by companies to track progress. Looking at KPIs as a form of communication will help. Like any other form of communication, KPIs should also have some basic characteristics- clear, concise and relevant. The common consensus is that KPIs should be limited to 3. Any KPI should not be less than 15 % of the total incentive target.

K
Management by Objectives (MBOs)
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To put it simply, MBO is a performance-based reward system in which managers and employees work in collaboration to set goals. The aim of MBO is to align targets with the organization’s objectives, and team members earn based on how effectively they complete the goals defined in their individual MBO program. 

Each employee's MBO plan should clearly define their tasks and workflows, and ensure that these goals are emphasized from day one. A weakness pointed out by many critics is that this style of management places more focus on the setting of goals to attain objectives, but fails to provide a systematic plan to do so.

M
On Target Earnings
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The compensation an employee can receive if all quotas are achieved. Therefore-

OTE = Target Variable Compensation + Base Salary

O
Override
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Form of indirect payment in which an employee receives a percentage of compensation for a sale that another employee has made. For example, a manager might receive a 2 % override on sales made by reps.

O
Pay-mix Ratio
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The Pay-mix concoction has two main ingredients- Base Salary and Incentives- that make up the On Target Earnings (OTE). To put it simply, the Pay-mix Ratio essentially communicates to sales reps how they would be paid.

P
Premium
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Extra payment that an employee receives above their usual pay rate. This could include overtime, extra payment for holidays etc.

R
Prorate
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Adjustment of an incentive, usually done in accordance with some specific eligibility requirements.

P
Quota
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Amount that a salesperson must sell in a defined period (month, quarter, year) in order to earn a commission.

Q
RevOps
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RevOps is basically this holistic approach to revenue. The approach combines sales, marketing, customer success and finance to create go-to-market (GTM) strategies that catalyze revenue growth. The main focus is on establishing intelligent businesses capable of making smart, data-driven decisions. 

RevOps is characterized by-

  • Agile, lean and streamlined processes
  • Good technology
  • Data-driven decision making
  • Efficient GTM teams

A lot of organizations place RevOps under one leader called Chief Revenue Officer (CRO) who manages the company’s financial resources.

R
Sales Performance Incentive Fund (SPIF)
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SPIFs are like a trick down the sleeve that companies can use to see results immediately. They are basically short-term incentives that can be used when a company wants to increase sales volume for a short period. They are also highly effective when a company is introducing a new product. Imagine a company launching a new product. They may give their sales reps a certain amount after each sale or after they reach a set target. This way attention can be directed to that product in the short term.

S
Territory
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Geographic area and/or accounts assigned to a salesperson.

T
Total Rewards
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Total rewards are a sum of all the ways you compensate your team. This may include traditional ways to compensate employees like salary and non-traditional benefits like leadership training programs. Traditional and non-traditional offerings can also include- 

Traditional Offerings-

  • Access to health insurance
  • Retirement plans or aid
  • Life Insurance
  • Paid tine off 
  • Stock Options 

Non-traditional Offerings-

  • Variable pay incentives- bonuses among others
  • Work-life balance 
  • Employee discounts
  • Well being programmes
  • Training 

T
Windfall
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Significant additional pay received by a salesperson.

W
Workflow
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Automated business processes that follow a particular set of orders and approvals. ICM workflows are defined around several processes that include data collection, data cleansing, sales alignment and crediting, payment adjustments, plan acknowledgement, dispute management, etc.

W

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