They do so for two reasons:
- Plans don’t incent the desired behavior
- Compensation plans are too complicated
Frequently, Sales is compensated for top line revenue growth while the corporate objective is to increase profits. Sales reps sacrifice price by offering incentives and discounts to customers in order to close sales. The result may be more revenue, but at reduced margins. Incenting the right behavior is, after all, the goal of the comp plan.
Keep it Simple
When I ask sales reps to explain how they are compensated, the response is often a long-winded explanation about multipliers, inflators/deflators and unrealistic objectives. We as sales people can often be mercurial characters, but we are simplistic when it comes to compensation. Too many variables cause confusion and lack of focus.
Misalignment and unneeded complexities lead to poor results in many organizations. A few questions for sales leaders to ask when designing compensation plans:
- Do my sales incentive plans align with the corporate objectives?
- Does my current plan incent behaviors that match the company’s needs?
- Can I explain the current compensation plan in under a minute?
- Are there fewer than three variables in the existing compensation plan?