Sales Compensation Glossary

CPQ systems allow sales personnel to generate product or service options, prices, and quotes with precision. By decreasing quote errors and rework, such systems are characterized by quick and precise responses to requests from prospects.

A decelerator is a reduced commission rate that decreases a sales representative's compensation compared to their base commission rate. It can be used as a penalty for poor performance before reaching the quota or to prevent excessive rewards after the quota is met. Decelerators should be used with caution as they can demotivate sales representatives. An example of a decelerator would be reducing commission rates for sales representatives who do not meet their quota or reverting commission rates back to the base rate after surpassing a certain percentage of quota to avoid excessive payouts.

Direct credit refers to a payment arrangement where the buyer purchases goods or services on credit directly from the seller, rather than obtaining financing from a third-party lender. In this arrangement, the seller extends credit to the buyer and allows them to make payments over a specified period of time. Direct credit can be a convenient option for buyers who may not have access to traditional financing or prefer to deal directly with the seller. However, it also carries risks for the seller, such as the possibility of non-payment or late payment.

Dispute resolution refers to several processes that can be used to resolve or settle disputes related to commission cuts, commission splits, ambiguous language in the contract or commission paperwork, etc. There are three main alternatives to litigation for settling disputes: negotiation, mediation, and arbitration.

A sales representative's ability to borrow funds against future commissions. Draws can be "recoverable" (the sales representative must repay the corporation with future commissions) or "non-recoverable" (no need to pay it back). Draws are often utilized to bridge the gap between when new sales representatives begin their jobs and when they begin earning commissions for making sales.

A draw against commission is a payment structure used in sales jobs where an employee receives a regular payment (the "draw") as an advance on future commissions. If the employee earns enough commission to exceed the draw, they keep the excess as their commission. However, if the employee does not earn enough commission to exceed the draw, they may be required to pay back the difference to the employer. The purpose of a draw against commission is to provide sales employees with a predictable income while still incentivizing them to sell as much as possible.

A component of an organization's incentive and compensation plans for senior management. These include long-term or annual incentives, deferred compensation, competitive benchmarks, and retention plans.

A component of an incentive compensation or commission plan that, when satisfied, enables the payment of another component. For instance, meeting a particular percentage of a sales quota can be a prerequisite for receiving a sales bonus when a salesperson sells x or more units of a product.

Guaranteed pay typically refers to a base salary that is paid to a salesperson regardless of their performance or sales results. This means that the salesperson is guaranteed to receive a certain amount of money as their compensation, even if they do not meet their sales targets or generate revenue for the company. Guaranteed pay is often used as a way to provide financial stability to salespeople while also incentivizing them to exceed their sales goals and earn additional commission or bonuses based on their performance.

Hierarchy is a system of ranking individuals within an organization based on skill level, seniority, and commission paid. There may be multiple hierarchies within a single organization, and remuneration may be distributed through multiple levels of the chain of command. Organizational hierarchies can also be used for security purposes, by excluding specific personnel from accessing software systems and data reports. Additionally, hierarchies can be used to show relationships between different entities, such as product categories and subcategories or customers in specific regions.

Incentive Compensation Management, abbreviated ICM, is software that enables Sales Compensation Managers to automate processes, such as running computations and generating reports, with the added benefit of avoiding spreadsheet-related errors.

Incentives for sales are the prizes and benefits granted to salespeople for accomplishing specified targets, typically the sale of items or services, to encourage additional sales.

A form of sales commission arrangement in which payees are compensated for sales they may not have personally closed.

Individual incentive systems are often employed when employees have control over outcomes, they are accurately monitored, and they foster healthy competition.

Key Performance Indicators (KPIs) are high-level, quantitative measurements used to assist a firm in monitoring its progress toward its larger objectives, such as organizational initiatives. KPIs differ based on the organization's goals. For example, growth KPIs may include revenue and market share, while profitability KPIs may include net margin and cost of sale.