“Confused HR” asks :
“What is the guideline for employees who are in Sales Incentive Plan but accepted a new role which is not SIP-eligible ? From my point of view, it makes no sense to move them into the regular bonus scheme after all the efforts we have done to convince them to go into SIP.”
Thanks to my friend Soraya for providing me with this question.
My answer to this question is very simple and bears no exception : move the employee out of the Sales Incentive Plan.
Why ?
First of all, incentive eligibility is linked to your current job, not past one or future one. So, as an employee, what I do today is what should drive the type of variable pay I am eligible to, if any.
Besides, what kind of targets would you give the person and how would track and measure progress towards those, if you were to keep them in the Sales plan ? Imagine the person has moved from Sales to a financial controller position. If your SIP is linked to revenue, product mix or profit margin, and the sale of related services, how would you calculate the bonus payout for them now that their job addresses financial tracking and analysis ?
Don’t be lazy and not change them just because it is more convenient for *you* HR. You have to do the right thing for the organisation.
Now, how you go about that is a whole other topic, and you’d better put in place some guidelines if you want to achieve a smooth transition in or out of the SIP.
Guidelines for moving employees out of the SIP
Objectives :
Will you prorate the objectives for the time the employee spent on the SIP during the plan period, and pay out based on these revised targets ?
If so, when you will you pay this : at the time of changing jobs, or at the normal payment date of the SIP ?
Be careful as well if your SIP has seasonalised objectives (eg : vary each month or quarter, not a straight progression or the same objectives because the demand is supposed to be linear).
An extra tip : what kind of sales target will you give to the person replacing the employee on the Sales role ? Will you guarantee a minimum payout ?)
Base compensation :
Often, the paymix is different for Sales population and the rest of your organisation. Base pay tends to be higher for non Sales positions, with a lower maximum bonus. How will you transition the employee to this new paymix ? Can/should you do it at once or over a period of time ?
For instance, a lot of multinationals tend to differentiate the paymix more aggressively between Sales and non-Sales role. For example, the split between guaranteed cash and variable pay is 70/30 (which means SIP at target is 43% of guaranteed cash) for sales while the split is 90/10 for the rest of the organisation.
In these cases, they tend to adopt an intermediate phase for one year where the basic pay is increased somewhat, and the on-target bonus is reduced, for example to an 80/20 mix, before moving to the “normal” 90/10 split.
This allows to progressively bring the person in line with the salary range for non-Sales positions instead of brutally increasing permanent cots to the company.
Obviously during that transition year, the employee has moved to the non-Sales bonus scheme and his/her objectives are tied to the new position and provide the required line of sight and SMART description that is needed for any bonus plan.
Promotion :
Don’t forget to take into account the grade/level of the new role. What do you do if the move is coming with a promotion at the same time and the grading system is different in Sales than it is in the rest of your organisation ? And how will you “prove” the promotion to the employee especially if the paymix is so different between positions ? (hint : it helps if your grading structures, even if different between sales and non-sales, are aligned in terms of allowances…).
Communication :
Once you have considered these points, explain your decision clearly to the HR Business Partner and the new line manager to get their support and understanding. They need to be able to explain these principles to the employee by themselves.
Then also have a session with the employee so that they understand the rationale. The 10 minutes you will spend explaining to them and their new manager, why and how you are transitioning them out of the SIP, will save you a lot of time down the road at bonus payment time, will help to maintain employee engagement, and will establish accountability at the manager and employee level. You will also have a more empowered HRBP who will be able to anticipate some questions in autonomy in the future, thereby saving you time and effort in the education process. Everyone’s a winner !
You don’t have to apply all these tactics, but you do have to give them a thought and be ready to explain the rationale behind your decision, because trust me, the questions will come !
Send me your questions related to Compensation, Benefits, Performance Management and Global Mobility. I won’t be able to reply privately, but every other week, I will pick up one of these questions and answer it on my blog. So go ahead and throw me your queries !
What if the non sales position bas no SIP? For instance it becomes a tricky explanation to even top managers who try to balance the loss through including potential Sales SIP on base salary(obviously not the best solution), but often choosen to keep competitive comp levels.
What are your thouths on this issue?
Thank you for sharing
Hi Nathalie,
When you set up your change of incentive rules, a solution which I have seen in some organisations is to move the person over a period of time in terms of their pay mix (ratio of fixed to variable pay). For example :
Old ratio was 70/30 (ie a high on-target sales incentive, because it represents 30% of the total target compensation)
Intermediate ratio is 80/20 (higher base pay, lower target incentive) – taken out of the SIP, and into the “regular” bonus scheme, with a different target than other employees during the transition time
New ratio is 90/10, aligned with the “normal” incentive scheme for non-Sales.
You don’t have to keep the same target total compensation when you do this move, because sales roles might have a higher TTC than a non-sales role, but with a lower base pay.
It’s a tricky change, but transparent communication and being open to change will help to get the agreement of the employee. In most cases the employee has considered these challenges before moving to the non-sales role, and will accept a (reasonable) decrease in TTC since the base pay will go up, and they are making a career change and moving into something which is making them grow and learn new things professionally.