Do sales compensation programs differ from country to country? The short answer is “yes,” but in some surprising ways.
The Alexander Group’s recently published 2016 Multi-Country Sales Compensation Practices Survey took an in-depth look at sales compensation practices among companies that have sales personnel in numerous countries. More than 110 companies provided detailed information about worldwide sales compensation practices. Here are some of the noteworthy findings:
- 87.4 percent have corporate sales compensation principles governing sales compensation.
- 76.6 percent of the companies favor additional global consistency in their sales compensation practices.
- 80.9 percent of the reporting companies have a responsible party leading global sales compensation practices.
These trends point towards increasing global consistency in sales compensation practices and fading local differences. However, country-to-country differences continue to exist. Unique local practices continue to be evident in target pay, pay mix, teaming and local regulations.
Compensation professionals correctly set target pay levels using local market pay surveys. However, most global compensation schemes have a job valuing method that sustains the internal ranking among jobs even though target pay levels are set at the local level.
Pay mix reflects the degree of “risk” in the sales compensation plan. Leadership divides the target total compensation into two components, a base pay and a target incentive (base/incentive). This ratio varies from country to country for the same job. However, the variance is not as divergent as many observers presume. For the “account manager” job, the U.S. (60/40) has the most aggressive pay mix while Japan (68/32) has the least aggressive pay mix.
Another local factor affecting sales compensation plans is the degree of teaming in the incentive plan. Often cited as a cultural norm, the degree of teaming (incentives earned based on group results) differs by country. The surprising winner in the teaming category is the United States with companies setting aside, on the average, 18 percent of the target incentive for team rewards. Table II presents the survey responses of degree of teaming for 10 countries. For the account manager, the United States (82/18) has the highest degree of teaming and India (90/10) has the lowest portion of teaming.
Clearly, there are numerous local legal regulations including sanctioned works councils, which affect sales compensation design at the country level. When designing incentive plans for a specific country application, investigate these often different practices:
- Base Pay: restrictions affecting total compensation and base pay reductions
- Clawbacks: precluded in some countries
- Signed Acknowledgement: employee and employer must sign plan
- Minimum Wage: base pay minimum wage required
- Mandated Pay Increase: must provide government-mandated pay increases
- Pay Mix: government practices define relationship between base and incentive
- Termination: in-process commissions must be paid at termination
Global Versus Local Sales Compensation Practices
As globalization of the economy continues, management will adopt corporate-wide sales compensation practices. Differences will still occur such as target pay levels and regulatory practices. However, differences driven by cultural norms may be in retreat as evident of only a modest difference in the degree of “risk” and “teaming” seen in pay plans from country to country.
About the 2016 Multi-Country Sales Compensation Practices Survey
More than 110 companies participated in the survey, which was conducted in June and July of 2016 and published in August 2016.