January is over. The first monthly commission statements will soon be in your sales reps’ hands. A strong leading indicator for a successful year is the impact of the reward system. The crystal ball is now ready for a look into the future. Take a few minutes for a peek at this year’s performance.
This post is for Sales leaders and HR business partners. It answers a fundamental question. “Are the compensation mechanisms driving the right behaviors?” Many ask this too late in the year to make a difference. Waiting for year-end results won’t help you Make the Number this year. You may be surprised at how much you can learn after just one month. Investing a few minutes now may avoid big headaches later.
To make your assessment easy, SBI has created a 10-point Compensation Inspection tool. This simple, free, downloadable tool reveals the vital signs of your plan. Read on to understand the mechanics of effective sales compensation.
How Important is Compensation?
“The total outlay for Incentive Compensation in the U.S. is over $800B per year. That’s 3 times the amount invested in advertising! Most companies have regular meetings to review detailed analytics on how the advertising program is working. I don’t find the equivalent reviews and analytical checkups on the sales comp plan. Too many companies treat sales compensation as a once-a-year review. They roll out the draft plans in November, have a few meetings, adjust the territories and quotas, roll it out to the field and run off to the next challenge.”
The January Two-Step
Your team spent many hours at the end of the year on the new plan. The flaws of prior plans have been fixed in this edition. Or have they? Now is the time to find out. Here’s the two step process to that Managers and Reps follow in the first month:
Step One: Complete a Territory Account Plan. Determine where the business will come from. Figure out what resources and strategies are required. Plot activities and expectations on the calendar.
Step Two: Calculate personal income based on executing the Territory Account Plan. If the earnings are below target, can the plan be reworked? Maximize the levers of the compensation plan to deliver the desired earnings.
Top Sales reps become a retention risk when they recognize that the plan will not support achievement of their income goals. The January commission statement can be a sign that it’s time to look elsewhere.
Consequences and Challenges
The consequences of an ineffective compensation plan are wide-ranging and perilous. The failure to drive the desired behaviors is just one danger. Here are two examples:
Manager on the Bubble: A manager close to achieving quota is less likely to terminate an underperforming rep. This manager only needs a small amount of revenue to make plan. The manager takes a calculated risk, hoping for a lucky break. The weak performer is allowed to stay in the territory. Contrast this behavior with a manager who is significantly below (or above) plan. Studies show that these managers are significantly more likely to pull the trigger. This result is better for the customer – a fresh, responsive sales person. And it’s a start on the road to a rejuvenated territory.
Challenge: Ask the manager, “If I gave you quota relief for the territory, would you keep the poor performing rep?” If the answer is “No” then it’s time to take action. Otherwise, the manager’s compensation plan will dictate strategic decisions on hiring and retention.
Retention Holes: Research substantiates the fact that January and December are when most sales turnover occurs. Top Performers depart most frequently during the first and last months of the fiscal year. Top reps also tend to leave in the middle of the year.
Challenge: Keep top reps focused and motivated.
- Simplify: Make sure compensation is easy to calculate and predict
- Recognize: Use multiple leaderboards. Spread the fame by recognizing more than just quota performance. Prominently display achievements in pipeline growth, new logos, key products, deal size and more.
- Communicate: Provide real-time results. Update stack rankings daily. Use internal social media to share successes. Make it all mobile-friendly. Energize your sales team with a daily smartphone update from the coffee shop.
- Enlighten: Enable sales reps to calculate the value of each opportunity. Enable the CRM or pricing system to calculate potential earnings. Make it easy to calculate the impact of discounting on commissions.
- Inform: Don’t let rep use shadow accounting spreadsheet to calculate commissions – enable the compensation system to display real-time performance. Seeing the distance to the goal line each day is a powerful motivator.
The 10-Point Inspection
If you’re like most sales leaders and HR business partners, this is the start of the year. The early results of the new compensation plan are now visible. Take the time today to assess your plan. Download the 10-Point Compensation Inspection tool. Compare your plan to these best practices. If your results are less than expected, the tool will help diagnose the root cause. This easy check-box analysis will point you towards ideas for early corrections. You’ll stay on track to Make the Number.