In our recent interviews with HR business partners this is a top concern. If the compensation plan is not effective it will have profound negative effects. Here are just a few:
- Direction – Sales reps may be focused on the wrong
activities. For example: selling low margin products because they maximize the compensation payout.
- Timing – The delay between signing the order and getting paid may be too long. The reward is not clearly aligned with the activity.
- Retention – Top performers who are failing to achieve their expected income are at risk. A compensation problem may soon morph into a retention problem.
- Success – Q1 results are a leading indicator. Is the entire sale organization at risk of not Making the Number for the full year?
Early Results Are In
If you are like many, you invested in outside help to benchmark your compensation. Did you get the bump you expected? If you haven’t checked yet, now is the time. Early April is the time to assess and, if necessary, make corrections. Time is of the essence. Here’s why:
- The numbers are in. You have data to make decisions.
- The impact of the Q1 Bonus can be measured. Did it incent the right behavior?
- It is still early enough for a change to make an impact on this year’s results.
- If you are overpaying or rewarding the wrong behavior, stop the bleeding.
- Send a positive signal to top performers who may be eyeing the exit.
Making within-year changes to the compensation plan is a serious undertaking. By now, sales reps have internalized the dynamics of the plan. They have targeted their selling campaigns for the coming year to maximize their income. Momentum is strong. Even if it is in the wrong direction.
The analytical work and testing to develop the new compensation plan consumed hours. Here’s the question: Should the time investment made just a few months ago be scrapped so soon?
Compensation is not an exact science. Sometimes a slightly flawed plan will reward most of the right behaviors. It doesn’t have to be perfect, just effective. An assessment now will give you 3 choices:
- Make drastic changes to the plan immediately
- A minor correction is needed, but the plan is generally sound
- The plan is effective; make improvements next year
Compensation: One Factor Among Many
Compensation: One Factor Among Many
Unfortunately, compensation planning is often an academic exercise. Benchmark data is purchased toward the end of the year. The existing plan is compared to see how it stacks up against the market. Adjustments are made for changes in coverage, expected new products and key initiatives. The plan is finalized and approved. The danger is that this is isolated from the dynamics of the whole sales framework.
How do you know if comp-incented behaviors can move the needle? Sales performance is affected by a wide range of factors. Here are a handful that could impact overall compensation attainment:
- Lack of sufficient leads caused by failure to identify the Buyer Personas
- A sales process that is not aligned to buying process
- A new product launch without proper sales enablement
- Weak content marketing that does not support the buyer’s journey
- Territory potential and/or Quota calculated incorrectly
In short, you can’t just rely on a benchmark to assess your compensation. The interactions among the various factors require an understanding of the entire Sales Force Effectiveness Framework. This is beyond the services provided by firms that specialize in compensation. Click here for more details on the risks of relying on comp benchmarking alone.
The Q1 compensation results will soon be in your hand. It’s time for HR business partners to ensure that compensation is delivering results.
In just a few minutes you’ll have a clear understanding of how your plan is performing. If you need to take immediate action, it will be apparent. Your sales team’s ability to Make the Number depends on foresight and action.
Once you have completed the checkpoint, share a comment below. Your peers will appreciate hearing from you. An effective compensation plan is a strong competitive advantage. Make sure yours is sharp today.