Let’s suppose HR is fully engaged for redesign of a 2013 Sales Compensation plan. HR even brought in an expert compensation firm. The plan looks great – equitable, in line with competition, attractive to sales. But wait – this new incentive compensation plan could flop. That would make 2013 worse than this year! What can be done?
Take the time to test your new Sales comp plan for compatibility – compatibility with culture and other drivers. Sign up for the SBI Make the Number tour to learn how peers are building sales comp plans. Also, you’ll get many tools including a list of Sales Effectiveness Drivers to test your plan against.
Compatibility is just one of 20 areas to test against when designing Sales Compensation. The biggest concern of a compatibility test is cultural fit.
Here’s an example of culture going untested:
A CSO of a large B2B sales force was challenged by his CEO to grow the business. So, he commissioned HR to design a new incentive compensation plan (IC Plan.) The IC Plan went from less than 10% variable pay to 30%+ variable pay, with a focus on new logos. But it was a disaster. It failed because the Sales people were relationship builders accustomed to slow growth in existing customers. The sales force did not have the right culture of hunter reps and aggressive sales managers.
More examples of culture misfits:
A company culture strives for collaborative efforts – yet the pay plan requires individuals to be ranked against each other. Will this plan foster teamwork?
A sales force today has unlimited upside potential – a culture of top performers. The new IC Plan institutes a salary cap as a cost-cutting measure. Reps suspect that the CFO must have been involved in that design. Where will the top performers go?
A company’s sales culture is geared around one annual event – President’s Club. Managers do what it takes to get as many people into the club as possible. This brings extra bonuses to managers. What will happen if the new IC Plan raises the qualifiers, or eliminates President’s Club altogether?
Culture at another firm required Sales Reps to do their own prospecting and sales. Most sales were incremental or competitive displacement when prospects were in an active buying cycle. Marketing’s new Lead Generation and Sales Enablement now generated latent buyers. The IC plan was changed to diminish Rep prospecting. Will Reps be able to break their old habits?
Hopefully, the new IC plans for these situations have been well thought through regarding cultural fit. But that’s not the only compatibility area to test.
Here are some other compatibility tests. Any one of these areas could be a land mine that blows up your 2013 sales comp plan
- Will the new IC plan conflict with hiring? Is the new IC Plan suited for go-getters with high variable pay? Check the hiring profile to see if it is still looking for Account Managers with relationship-building skills. Or vice-versa – a profile needing aggressive reps, but a plan that pays industry average. This IC plan won’t reward them for their risk.
- Will a focus on training and coaching be undermined? Suppose HR and Sales have built great training and coaching materials. Yet the IC Plan is highly variable and doesn’t motivate Reps or Managers to partake of it. Or, the sales force has been trained on using social media in selling. Does the IC plan encourage the effective use of this new skill?
- Are tools in place to support the new IC Plan? Maybe a change to the IC plan calls for Reps to focus on top accounts in their territories. However, the company doesn’t have the data or toolset to tell Reps those top accounts. Then again, maybe the IC plan conditions payment on Reps entering deal info into Salesforce. Is the tool ready for easy entry?
- Will customers be adversely impacted? Does the new IC Plan cause Reps to push products that may not benefit the customer? Otherwise, are Reps now motivated to upgrade customers causing disruption with limited return?
- How will Sales Managers drive Reps based on the new IC plan? If the new IC plan doesn’t also tweak manager pay, will they still be coaching Reps to old paradigms? Say the plan does address Managers – will incentives cause short-term mindsets at the expense of Customer Lifetime Value? What if a Sales Manager has a team with different types of Reps (e.g. Key Account and Commercial Account?) Will the IC Plan address these intricacies?
Call to Action
Here are 4 steps HR can take to ensure the 2013 sales comp plan will succeed:
- Attend the SBI tour to get this tool that identifies potential sales effectiveness drivers
- Choose the sales effectiveness drivers for your company
- Determine objectives of the IC plan
- Test the objectives for compatibility with the Sales Effectiveness drivers