Today’s article is focused on sales compensation planning. How do you decide when to change the plan to pay your people responsible for driving growth?
One of the biggest misconceptions about compensation is that it drives behavior. It does, but only partially. When overused it doesn’t deliver results.
When evaluating whether it’s the right time for a change to the compensation plan, here are questions to ask:
- What is the behavior change you most want to see in the reps?
- What is deficient in the current plan in terms of getting to the next year’s goals?
- Do all the reps understand the plan and can explain it?
- Would it be better to invest in assessing territory potential and drive new behaviors through improved account allocations?
- How many of the highest paid performers are you willing to lose if the plan change does not favor them?
- Are you willing to invest in automation to help with administration and personal calculators?
If you need more help with your compensation planning, download our 10th annual workbook, How to Make Your Number in 2017. Turn to page 308 and review the sales compensation phase.
Here is an example of compensation not driving behavior. New product revenue incentives are often a part of sales rep compensation plans. One of my clients did a 4x multiplier to drive sales of a relatively new product. The compensation plan was ineffective because the product was launched prematurely and had quality problems. In this case, a compensation driver would not have remedied the situation.
On the other side, let’s review an example where a salesperson is comfortable with a product. The product is so strong that there’s pull from customers. Salespeople will sell it without any special compensation allotment. The difficulty here comes when you want them to shift to focus on other products that require more time, effort, and skill. Compensation is often inadequate on its own to drive the change.
The take away is to get the root of the problem. Only then can you properly designed an incentive program to attract top talent and motivate the desired behaviors.
There is an old saying in the sales profession, “Give yourself a raise, sell more.” As a sales leader, it’s inconceivable to think of anything with more of an impact than changing comp plans.
The reality is that there are a variety of improvement programs being implemented and one of them is compensation planning. When positive results roll in, it can be confusing to determine just exactly what it was that made the difference. Was compensation a key part of the results achieved, a neutral non-impact, or even a drag to performance?
Sales operates in an environment where there are many changes happening simultaneously. You can’t isolate the variables. Here are deep strategic questions to ask yourself to make sure you have the right sequence of changes and timing for a compensation change.
- Am I inheriting a sound strategy? Is there a clear corporate strategy?
- Do my peers in product and marketing have strategies? Do they support or conflict?
- What are the specific behaviors you seek to change with the new plan? These are not end results like revenue or customer churn. These are new selling behaviors such as sales process Job Aid usage, CRM data update, or mobile content adoption.
- Was there turnover after the last comp plan was announced and did the reps who departed state in their exit interviews that the comp plan was a main reason for their departure?
- Are you able to attract more and better talent for your sales roles with the new plan? Have you lost talent due to a lack of pay for performance? Do some the new hires express the opinion that they joined your team in part because of the compelling nature of the plan?
- Did you see a change in the dispersion of your top and bottom performers? Oftentimes, deficient plans have a major skew of few top performers capturing the lion’s share of incentive compensation. This leaves most reps below quota and enjoying little of the gains. Has a greater share of reps pushed past the 100% quota attainment mark?
- Did you change the calculation method for territory potential at the same time as the comp plan? If so, it may be impossible to isolate which change is responsible for the improvement.
Overall, you must look at all pieces of the puzzle. Before investing time on compensation plan changes, validate that now is the ideal time for the change.
If you need more help with the development of your sales compensation planning, request a workshop with an expert by simply signing up for a MySBI account and check the box in your preferences to request a workshop.