Is your compensation plan driving the results you wanted? More importantly are you motivating your team? Now is the time to get your compensation plan right for next year. There is no better motivator or de-motivator for your sales team.
When creating a world class sales compensation program you need to focus on the following:
- Attracting and retaining top talent– this can set you apart from the competition and help keep your “A” players.
- Motivating the team to focus on desired behaviors– identify what behavior you want each role to focus on. Then tie your compensation to those behaviors and measure them.
- Aligning the compensation plan to the corporate budget – you need to ensure that the sales budget aligns to your plans. Example, you can’t afford to blow out your compensation budget in Q1 with accelerators.
A common pitfall to avoid is what I call the “knee jerk reaction.” You may have experienced some of the following:
-When you don’t hit your number, you change compensation.
-When someone is struggling, you change compensation.
-When you have someone threaten to quit, you change compensation.
-When you roll out the next “big idea,” you change compensation.
These are all examples of “knee jerk reactions.” They are done with little planning or insight. When this occurs, you create inequality in your sales organization. This can cause low morale and high turnover.
Before you start designing plans, make sure you’ve completed territory design and quota setting. If you create compensation plans too early, you will be out of sequence. If you need assistance understanding why sequence is important, download our Annual Research Report.
Here are a few key questions from the report that can get you started.
Are we accurately benchmarking compensation for each role?
When you build your compensation plan, you need to benchmark it. This means comparing the role to what others are paying. Conduct research on the industry and your competition. Do your homework upfront to get a baseline for each role. Also, don’t assume that each role is the same when building compensation plans. You should have clear roles and responsibilities identified that may impact each plan.
Do we know what the optimal compensation plan is for each role?
This one can be a tough one to answer. You need to align your budget to what you believe the role should produce. Understand what the attainment expectations and responsibilities are for each role. Then link that to the revenue and cost budget. Don’t assume that each role is the same when building compensation plans. You should have clear roles and responsibilities identified that may impact the plan.
For example, someone that doesn’t carry a quota may only have a salary. If they can’t effect revenue, should they be tied to it? You may also want to pay more for new logo sales. Traditionally, this is harder than selling into your install base. Align your roles to the behavior that you need from each.
Do we have a plan to measure the effectiveness of our compensation plans?
Rolling out a compensation plan with no measurement is a recipe for failure. The easiest way to measure is on payout against attainment. The attainment could be in the form of quota, MBOs or company performance. Make sure that whatever you choose, there is objective data to measure. When you have subjective input, you open yourself up to debate. Sales teams who carry subjective comp plans, traditionally have lower results. Remember to align your plans to measurable company objectives. If you can’t measure it, then don’t pay on it.
What to Do Next
Don’t wait until January 1st to start building compensation plans. Make it part of your annual planning process NOW. Build the plans and have them ready to populate after you close the books. Your team is going to be ready to roll in Q1. Don’t deflate their momentum by not having comp plans ready. If you need additional help download our “How to Make the Number in 2015″ Report.