January 17, 2019 | Written by: Kevin Gray
Categorized: Blockchain | Sales Performance Management
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Regardless of how hard you try to design and implement the annual sales compensation plans, there is a risk that your compensation plans will not drive the right sales behaviors, motivate the sales team with clear priorities, help retain sales people, and improve high sales satisfaction for the long-term. These all can be seen as pillars that are in the best interest of the sales organization, the business, and the year ahead.
The sales incentive compensation plans are a crucial tool to the organization and achieving success of the business objectives and goals. It has a huge impact on your sales team’s performance, motivation and business outcomes. When these plans are poorly designed, rolled out, and not maintained throughout the year, the sales team lacks the direction, guidance to stay focus and on course, and the perception of the sales incentive comp plan will be viewed as a “flop” in the end.
Asking the right questions
Here are some questions that you should be asking the executive team before designing and rolling out the sales incentive compensation plans:
- Are we moving into new markets and if so, what markets?
- When is the product offering team expecting to release new products into the market? Is there a product roadmap and launch schedule?
- Are there any new or existing competitors entering our markets, and if so, are we planning to aggressively attack them?
- Do we have a customer retention issue or are we in customer acquisition mode?
- Which customers are there for up-sell/cross-sell opportunities?
- Is there a specific product category and product line that we want the sales team to focus on as strategic sales?
Thought-out plan is vital
However, when the sales incentive compensation plan is well designed, communicated properly to the sales team, and maintained throughout the year when changes occur, the sales team is set up for success. They look to the compensation plan for direction and guidance, and the comp plan has a huge impact on motivating and focusing the selling behaviors of the sales team.
I’ve worked with many customers throughout the years who have often asked me the same question:
Three things to consider before you start
As sales and compensation leaders are evaluating and updating your sales incentive compensation plans for 2019, I’d like to recommend that you consider these three key considerations before jumping into the planning process:
1. Company objectives and goals are not aligned with the sales incentive compensation plans
Most sales and compensation leaders have heard this one before but what does this truly mean? Well, the company objectives and goals need to first be established and communicated in advance before jumping into the design of the sales incentive comp plan. How can you define a plan for the sales team to be successful when you don’t have a clear set of business objectives and goals?
The company objectives and goals need to be defined from the top c-level executives – the CEO, CFO, CRO and HR. These organizational leaders are responsible for the overall direction and financial results of the company. They set the business objectives and goals for the company and in turn, these trickle down to the functional groups including the sales operations, sales managers and the compensation administrators. Do not attempt to design the sales incentive comp plans without the company objectives and goals clearly defined by the executive leadership team or your sales incentive comp plans will surely flop in the end.
2. Sales compensation plans remains unchanged from previous year
Yes, designing a proper sales incentive comp plan is challenging. Many organizations take the easy path and roll their existing sales incentive comp plans over from one year to the next. This is not a good idea. Let’s face it –things change from one year to the next year. If the business is going to grow, you need to revisit what is working in the existing sales incentive comp plan and evaluate whether this design supports the company objectives and goals for the year ahead. Chances are, you need to make changes.
When looking for a Sales Performance Management or Incentive Compensation Management solution, you’ll want to make sure that you can create multiple scenarios during the design phase of your new sales incentive comp plan. What if you used a four-tiered structure this year instead of a three-tiered structure last year? What if you used a 3% product rate instead of a 2% product rate? What if we changed our accelerator threshold to, say, $40,000? Being able to model different scenarios while you change the sales compensation plans is important as you create scenario models and evaluate the best model to rollout in the coming year. Spending the time and effort to change the compensation plan is highly recommended. Chances are, you company objectives and goals will change from year to year – so should your sales incentive comp plans.
3. Sales Leaders and Compensation Administrators have different perspectives
It’s like two groups of employees both taking different unconnected paths. We see this far too often where sales , leadership defines and plans their three or four sales plays and the Compensation Administrators have defined and planned a completely different set of measures in the incentive compensation plan. This is another reason why it is crucial that the company objectives and goals are clearly defined by the executive leadership first.
Once these company objectives and goals have been clearly defined and communicated to the entire organization is it time for Sales Leaders and Compensation Administrators to get together to define and plan both the sales strategy and sales plays in alignment with the sales incentive compensation plans. In fact, there are others stakeholders that should be included in the process including HR for sales capacity planning, marketing for campaign planning, and finance for revenue planning.
Time well spent
Designing a sales incentive compensation plan that will ensure the success of the organization and business objectives and goals is challenging. Before you jump right into it, spending the time and effort upfront is worth it. We recommend the following best practices:
- Make sure that your executive leadership team have clearly defined, and also have communicated, the company objectives and goals. Ensure that you have alignment between the sales leadership and the compensation administrators.
- Yes, designing new sales incentive compensation plans is challenging. When you simply roll this year’s comp plan into next year – you are likely not going to achieve the growth and success in 2019 that your executive leadership and sales leadership are expecting. The world changes. The competitive landscape changes. The economy changes. The available product catalog changes. Change the sales incentive compensation plan to align with your company objectives and goals.
- Meet with all stakeholders, including sales leadership, Compensation Administrators, HR, marketing, finance, and operations. When you align your incentive compensation plans across the entire organization and discuss the impact of these compensation plans have in each functional role, the end result is alignment, agreement, and success.