Misjudging Quota to Compensation Level:
The first element you need to consider is the quota to compensation level, because it helps you understand whether or not it’s sustainable. Say you pay a sales professional a base of $200,000 per year plus a variable. The compensation level is within the average range for similar roles in the industry, but the sales quota is $1 million, yielding a quota-to-compensation ratio of 5 to 1. That’s a terrible margin where costs can’t be sustained by revenue. Ideally the ratio should be 10 or 12 to 1.
Compensation planning is shy of rocket science, but not too shy. Beware of Complex Incentives:
Sometimes management takes a balanced compensation plan and loads on three or four incentive metrics, adding layers of complexity to compensation calculations.
Any incentive plan that reeks of complexity will result in paralysis and nonincentivized behavior. When it becomes too complex to perform the right activities, people get frustrated and leave. The purpose of incentive compensation is to incentivize one, or at most, two behaviors. The key is to determine what one or two incentives align best with your overall business objectives.
Don’t Fall Into a Benchmarking Survey Trap:
When planning compensation, make sure it’s the norm for the role (and its activities), the geography, and the industry. But beware of making comparisons against data generated by compensation benchmarking surveys. Oftentimes, there are no systems in place to ensure survey data is accurate or applicable. And many respondents misreport numbers — what competitive sales professional wants to admit that his or her compensation might be less than the next rep?
The most useful compensation data is generated through competitive intelligence. The process involves hiring a firm to acquire the compensation plans of whomever you compete with for talent. Through competitive intelligence, you generate highly valuable, useful planning data rather than the random, unreliable sales comp data points benchmarking firms provide.
Compensation planning is shy of rocket science, but not too shy. It requires compensation and performance management systems with relevant data and effective coaching at the center. These systems provide deep, meaningful insights into how people are recruited, compensated, and placed within territories. It’s an often-overlooked strategy that heightens your competitive edge.
How to Slay Your Number in 2016
Are you going to make your number in 2016?
If you are not sure but would really like to know, turn to page 46 and read our feature titled “How to Make Your Number in 2016.” Here, we summarize the primary findings from SBI’s ninth-annual research project, which captures what the best of the best are doing to exceed their revenue targets.