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Understanding the Importance of Total Target Compensation
August 11, 2023
The workforce is the backbone of an organization.
Their commitment, dedication, loyalty, and engagement to every aspect of company operations define the level of growth an organization can achieve.
Among all other departments, sales can be said to be the team that finds and opens doors of opportunity for any organization.
When they have such a crucial role in the growth and success of your company, isn't it fair that they are treated well to derive the desired outcome?
Well, commissions and incentives have been incorporated and practiced for a very long time to boost sales motivation and enhance performance.
But what more can we do to enhance the benefits of incentive compensation?
In this article, we will explore the topic of total target compensation, and the benefits, impact, and importance of incorporating it in sales management.
So scroll down for more.
What is Total Target Compensation?
Total target compensation refers to the total income a sales rep earns when they have fulfilled their sales quotas. Conducting a compensation market analysis helps organizations ensure that their total target compensation packages are competitive within the industry and region, attracting top sales talent and retaining high-performing sales representatives.
It is a combination of the fixed base salary and the variable pay that includes all the monetary incentives that the company offers like commissions, bonuses, etc.
Total target compensation is calculated as the sum of the base salary and the commission for achieving the sales quota.
Total target compensation= Base salary + Commission for sales quota achievement.
Total target compensation offers a great deal of positive impact on the salesforce.
Let's understand what they are.
Benefits of Total Target Compensation in Sales?
Total target compensation opens a great deal of positive outcomes for an organization. Lets us explore a few:
- Improve Sales Performance
A salesperson who is aware of the number of sales they must close and the target compensation they will earn on fulfilling this will be motivated to achieve their goals. They have an aim and will direct their energy, efforts, and focus in accomplishing it, leading to improved sales performance and potential increase in on-target earnings.
- Efficient Budget Allocation
Estimating the total target compensation of the entire sales team will help companies to efficiently allocate their budget, plan their resources and ensure better returns on investment. Effective money management is a major necessity for the success and growth of any organization.
- Achieve Company Objectives
Every company will have their growth objectives made for the year. But to materialize these plans into reality, a proper plan and an efficient team is required. An informed salesforce aware of their company objectives, sales targets, and compensation will have a more viable strategy to successfully achieve the company objectives, including understanding various sales targets examples.
- Clear and Fair Pay
Estimating the total target compensation becomes useful in finding and hiring top talents. Potential candidates can be informed of their pay during the hiring process itself and not leave it for an end conversation. These discussions will help instill interest and preference for choosing your company among sales candidates, especially for the clarity and fairness in pay.
- Employee Engagement and Retention
Salary and compensation are the first and foremost recognition an employee would expect from their company. An employee who feels they are paid well by the organization will return their commitment, dedication, and loyalty. It will enhance employee engagement and retention which are important factors in defining a company and its work culture.
Incorporating total target compensation in your sales management and having its benefits in your operations will have a positive impact on your organization.
For more information's On-Target earnings check out On Target Earnings (OTE) Model: Unlocking Your Maximum Compensation
The Impact of Target Compensation on Employee Motivation?
Providing salesforce an estimation of their year-end compensation and income can boost their motivation.
When salesforce is aware of the on-target earrings they will be proactive in their sales approach. It gives them an outline of the targets to achieve, a plan on how to get it done, and work towards achieving those milestones step by step.
This ensures that salespeople can consistently schedule their work, generating leads to fill their pipeline, prioritizing according to lead scoring, and closing deals on time for commissions at regular intervals. Understanding the significance of annual sales meaning guides their strategic approach to long-term success in the industry.
Such a systematic approach to work ensures a work-life balance where the salesforce can ensure professional and personal growth without having to compromise on anything.
On the professional front, as mentioned, strategically and systemically closing sales will help salespeople to achieve their goals, be recognized for their efforts, and earn the rewards that they rightly deserve.
In their personal life as well they can ensure that all the needs are met and responsibilities fulfilled.
Knowing their possible income for the year will help them plan for the future, invest in areas that ensure good ROI, pay back the mortgage dues, take care of their family and children’s requirements, or even plan a vacation.
When salesforce gains this balance in their professional and personal life, it also reduces the chances of burnout, thanks to a well-designed sales compensation strategy that focuses on sustainable, long-term performance rather than short-term pressure for closing deals.
Being aware of their requirements and responsibilities will always empower a workforce to be a good performer in the workspace.
To read more on the impact of incentive management, here The ‘M’ In ICM: Three Big Ws
Why is Total Target Compensation important?
By now, we have discussed in detail the benefits of total target compensation and the impact it can have on company operations.
Incorporating total compensation in your sales management will not only ensure the optimal performance of the sales team, but also benefit the organization as a whole by aligning individual sales team roles with strategic goals.
An organization with a motivated workforce can expand to incredible heights. Therefore, to maximize the growth potential, businesses must ensure they thoroughly evaluate their processes and practices.
Digital tools are the next big leap in bringing that operational efficiency and optimal results. Companies can effectively manage and improve their salesforce efforts by automating their incentive compensation plans and tracking sales performance.
Kennect builds, runs, and automates your incentive compensation plans to create transparency and achieve operational efficiency. For more information, Book A Demo Today.
Sheetal S Kumar
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