Sales compensation plans are usually designed at the beginning of the fiscal year. In some cases, the plans are holdovers from prior years. Sales compensation plans are meant to fairly compensate reps for their skills and results. They are also meant to provide incentive compensation for reaching established quotas. When you’re the HR leader, it is your responsibility to ensure that actual sales compensation meets those lofty objectives.
But what do you do when the sales leader comes to the CFO mid year with a case that the compensation plan should be changed? The team is missing their numbers and the comp plan is blamed.
Can you trust the assumptions of the sales leader that the comp plan is off? The plan is intended to drive compensation for the entire fiscal year. What would happen with a comp plan adjustment?
Before jumping to conclusions, mid year is a good time to review sales compensation to see if the plan is meeting objectives.
In today’s post, let’s look at how the HR leader can help the CFO assess the viability of the sales compensation plan, and what other factors the HR leader suggests for missing quota.
HR can offer valuable insights into “why” the comp plan is working or failing. What are Leading Indicators Telling the HR Lead?
In a careful review of the compensation plan, the HR leader should assess leading indicators to gauge the plan’s intentions and results.
Some of the indicators are:
- Turnover of Sales Reps Is the turnover rate for sales reps consistent with prior years? Or is the rate significantly higher than prior years?
- Difficulty Replacing Reps With A-Player Talent Is recruiting and replacing with A-Player talent difficult? If so, it may be a faulty comp plan.
- Comp Plan Failing to Keep Pace with Industry
A review of compensation benchmarking may help. But with compensation, benchmarking typically occurs at such a high level the results are often only crude indicators.
The HR leader should also review the benchmarks used to ensure they accurately reflect those used in their company and industry. In the absence of similar benchmarks, a small-scale compensation survey may be required. You want to be sure you have a comp plan that holds up to the market.
The HR Leader Provides Context.
It’s easy to compare sales to a single variable, say, sales by length of tenure. But in today’s complicated selling environments that hardly tells the story. In order to identify patterns, you need to express quotas with multiple variables:
- Tenure vs. Quota Attainment History shows that most reps require eight to ten months to reach their quotas. In this case, the CFO may need to wait a few additional months to evaluate this new set of hires.
- Quota Attainment vs. Geography Are reps in one region consistently outperforming reps in a different geographical region? Are industries in one area more aligned with the company’s strategy?
- Is it easier to obtain quotas in specific verticals?
Evaluating the Data: Does the Comp Plan Need a Mid-Year Fix?
With a well-documented analysis and a careful review of the compensation plan, what steps should be taken based on the complaints of the Sales leader.
It is common for some sales reps to doubt the validity of comp plan assumptions. The last thing an organization needs just as the sales team is hitting their mid-year stride is disruption caused by a comp plan change.
Unless the compensation plan has created indirect consequences that imperil the corporate strategy, mid year is not the time to change the sales compensation plan.
When the Issue Isn’t the Comp Plan.
A mid-year review is an excellent time for the HR leader to share situations that may be impacting sales profitability. Instead of the failure of the comp plan, these are other leading reasons that reps may be missing quotas:
- Sales Rep L& D The sales team doesn’t use all of the learning and development tools at their disposal for reaching quotas.
- Comp Plan Tension The sales team is upset by the Finance team decisions, e.g. disqualifying deals from commissions or bonuses.
- Poor Engagement Reps are disconnected from the organization’s culture and have little desire for achievement.
We created the Sales Comp Checkpoint to help dig into these type of issues. The Checkpoint has 11 questions that will give you a clear view on your comp plan’s performance. Click here to start using the Sales Comp Checkpoint.
Framing the Discussion With Alignment to Strategy.
With a wealth of specific metrics as well as the additional insights of the HR leader on cultural issues, the CFO has credible evidence that changing the comp plan is not the answer.
It’s important for comp plan discussions to be framed in reference to both the established corporate and sales strategy. Only consider mid year sales compensation plan changes when the plan adversely and substantially affects the organization’s strategic direction.
Sales Compensation Plans: Team Involvement In Assessing Changes
It’s important that leadership is involved in setting the sales compensation plan for each fiscal year. It’s equally important to involve HR leadership expertise when evaluating whether sales comp plan changes are required at mid-year.
With a thorough analysis and decisions framed by adherence to corporate and sales strategy, it’s likely that there are very few instances when a sales comp plan needs to change at any time other than a new fiscal year.