When it comes to sales compensation planning, there’s a lot to think about:
- What is a competitive mix for sales compensation plans, and how do I stack up to the rest of the industry?
- What’s the right balance between base and incentive pay for each of my customer-facing roles?
- What factors are critical for retention and how do I know?
- How do I understand if my compensation plans are effective?
Every organization asks these questions – in reality, businesses need to get much more tactile to ensure sales compensation dollars are delivering the best ROI and actually producing the desired effects.
Sales compensation planning: It’s not all about money
Workplace flexibility, aligned leaders, employee support, and non-monetary perks are all critical components that impact employee retention because fundamentally, at the end of the day people want to enjoy the time they spend at work and when they don’t, they’re a flight risk.
Many organizations try to combat retention issues with compensation, and that’s a costly mistake. Data suggests attrition is primarily driven by factors unrelated to compensation, like lack of flexibility, workplace instability, or limited opportunity.
Of course, when it comes to overall employee satisfaction, compensation is an important factor. The role of incentive compensation in this mix needs to be strategic in nature, motivating employees and connecting their performance to key organizational goals. Creating strategic compensation plans that keep employees focused and motivated is a nuanced art, but focusing on the right actions is the first step.
5 actionable sales compensation planning tips
1. Strategize with goals and roles in mind
Incentive compensation’s role is to align employee success with organizational success, increasing motivation and shaping behavior. Determining which roles should have commissions and at what mix can be challenging, but in general eligibility can be tied to how much contact the position will have with customers and the position’s role in directly persuading the customer to buy, partner, or adopt a service.
Sales will always be in this group and depending on an organization’s go-to-market strategy, this may also include business development, lead generation, solution consulting, and customer success roles. Back-office lines of business with no direct connection to customers like sales ops should never be on an incentive compensation plan because they have no control over their individual success. When you consider your incentive compensation strategy, keep the purpose of each role in mind.
2. Evaluate processes
Incentive compensation plans grow over time and as adjustments are put in place, they become more complex. Sometimes add-on product lines can become irrelevant thanks to disruption, so you’ll need to be ready to ask important questions as you’re assessing plan structures and strategic goals. Less complex plans can dramatically improve revenue, NPS, customer engagement, and employee productivity.
Looking at target incentive, total target compensation, pay mix variables, accelerators, modifiers, SPIFFs, and other elements are important, but you need to ensure your plans are producing the right outcomes. What KPIs are you measuring and how do your plans correlate those metrics to drive superior results and motivate key behaviors?
3. Shift mindset
Even when you have a refined focus and have examined the existing processes in detail, shifting away from the status quo is an uphill battle. If you’re juggling spreadsheets for incentive compensation management there is ample evidence that modernization should be a priority, but if you have a solution in place and need to rework your plans, internal stakeholders can be hesitant. The old mantra, “If it ain’t broke, don’t fix it” holds true for most of us, so to address the problem you first need to convince stakeholders that there is a problem.
After you’ve evaluated the existing process, examine behaviors and outcomes to uncover insights about plan effectiveness and any negative game-the-plan side effects. As you uncover these insights, pull stakeholders into the conversation to add context and potentially find deeper linkages. As you incorporate feedback and work with each of the stakeholders, any required plan changes will quickly become part of a constructive conversation with organizational buy-in.
4. Transform for growth
Sales compensation is a primary challenge for many organizations today, but when planning for growth and modernization, keep in mind that sales compensation is only the first challenge. Most organizations struggle with compensation because it touches so much of the business. Is it owned by HR, sales operations, or finance? How are sales stakeholders engaged in the process? Then there are the linkages between territory configuration, quota calculation, sales performance, and finance.
Today organizations operate in silos, but in the next five to ten years, they will need to understand and optimize these linkages as one connected process. As you mature and adopt superior incentive compensation management practices, plan to understand these connected SPM linkages.
5. Analyze and refine
Transformation is always challenging and in fluid evolution. As you begin to model new plan structures and drive transformation within your organization, it is critical to analyze real and expected outcomes to identify issues before they damage the bottom line. Deep thought and analysis are required for compensation plan design, but you can sense-check general plan quality by answering the following questions:
- Does it drive strategic goals and promote the right behaviors with the flexibility to grow to meet new needs?
- Is it fiscally aligned to corporate targets and total payout contingent to organizational success?
- Does it keep sellers motivated and focused on the right activities?
- Is it transparent, understandable, and fair across roles?
When you pair objective analysis and traditional correlation analysis with good planning, your sales compensation planning can drive the right outcomes and grow with the evolving needs of the business.
How do you stack up against the competition when it comes to sales compensation management?
Find out today!