Many companies “revise” their sales compensation when the cost of revenue escalates. They change sales quotas and make attaining the goal more difficult. Often, this is referred to the sales team as “raising the bar,” but doesn’t use much of a scientific approach. To complicate matters further, the sales goals change and then are ignored for a couple years until the cost creeps up again. Time for another correction! This isn’t compensation planning. It’s a lazy way to keep costs down without driving critical behaviors from the sales organization.
Today’s discussion is the first in a series of 3. It will focus on determining if you have an incentive plan issue that warrants further consideration. To do this, ask yourself these simple questions:
- Does my company conduct an analytical assessment of our sales compensation plan annually?
- When conducting goal setting, do we benchmark our sales compensation plans against a select group of our peers?
- Are we paying at or above the 60th percentile of our peer group?
- Does our variable compensation make up between 15-50% of total target earnings?
- Are we using no more than 3 key performance indicators (KPIs) to determine variable compensation?
- Is each variable KPI worth at least 15% of total targeted earnings?
- Are the performance metrics in our current compensation plan aligned with our corporate strategy?
- Does 60-75% of the sales team attain quota each year?
If you answered “yes” to the above questions, your organization is practicing characteristics of a world class sales compensation program. If not, are you looking at a gap or a gulf in your process? Determining how painful the problem is and who in the organization is impacted often helps assess whether or not to seek out more information.
If you are starting to feel like your sales compensation needs further exploration, stay tuned for my next article that will discuss options to consider for solving the problem.