Our firm is at its busiest in the fourth quarter in large part because we are hired to help our clients improve their sales compensation plans. Here are three common mistakes that arise again and again that you should avoid when you design your sales incentive plans next year.
1. Caps – For some reason, companies try to “mitigate risk” by putting caps on commission plans. There may be no greater risk of demotivating your ‘A’ players than showing them their earnings will be limited with a cap. It’s the equivalent of telling Michael Jordan his baskets will stop counting after he scores 50 points in a game.
- Call to Action – Push your chips into the middle of the table on your sales compensation plans. If someone blows it out next year and earns more than anyone else, so what? Pay your sales reps for doing what you hired them to do: Sell. If you are having a hard time accepting the mental model of unrestricted earnings for your sales people, consider the alternative of poor performance resulting in you being replaced.
2. Claw Backs – 90% of all compensation plans we review have some type of “claw back” language in them. This is the premise that companies reserve the right to make a rep pay back their commissions and bonuses if something changes in the account. For starters, most state laws state that if you “overpay” an employee, they have to volunteer to repay the money back. Good luck. Secondly, if you are clawing back commissions for anything other than gross negligence on the part of the rep, your incentive plan is the problem.
- Call to Action – Remove this language from your sales compensation plans in 2012. This is a close second to plan caps in the demotivation department. Want to build trust and credibility with your sales team? Tell them you are taking this out and designing a sales compensation plan for them that makes claw backs irrelevant.
3. Plan Descriptions – Companies seem to measure the worth of a sales compensation plan document by its length. A 15 page sales compensation plan document is 14 pages too long. We sales people are simple animals. Don’t overcomplicate the issue. More importantly, lead with the headline. The commission plan and calculation method should be front and center on page 1, not buried somewhere on page 13.
- Call to Action – Don’t bury the lead. When ESPN announced Albert Pujols’ new 10 year, $250M baseball contract, they didn’t read the fine print to viewers. Why? Because the audience wants to know what he will earn. Nobody cares that he isn’t allowed to hang glide in the offseason.
The competition for ‘A’ players in the job market is increasing every day. If you want to hang onto yours in 2012, avoid these 3 common mistakes when designing sales compensation plans.
Looking for best practices on finding new ‘A’ player leaders? RSVP to our webinar on Thursday January 12th to hear the best practices.