By fall, most organizations are deep into planning cycles, including their incentive compensation strategy, for the next year. Every company has unique goals, but there are five common sales compensation trends that will be leveraged by leading organizations.
Incentive compensation can be a strategic differentiator to drive sales, and businesses today are refining their approach to sales compensation to get an edge in increasingly competitive sales environments. With highly knowledgeable customers who aren’t easily swayed by slick marketing, companies are focused on empowering their secret weapon: their sellers.
Sales planning can be a daunting task, but as you revisit your current incentive compensation plans and look ahead to the next year, keep these trends in mind.
The most important sales compensation trends
The sales compensation trends that are driving the future of the industry:
- Gaining visibility via one source of truth versus spreadsheets
- Place a focus on ROI, and be sure everyone aligns with how those numbers are agreed upon
- Keep planning and learning simple, versus storing information on different platforms
- Focus on communication plans
- Actively plan for future disruptions
1. Avoid flying blind
A strategic compensation plan drives and shapes profitable selling behavior. For an organization to succeed today, sellers need to be motivated to execute on critical organizational goals and strategic compensation plans are an effective mechanism to drive the best outcomes.
But gaining visibility into how compensation plans are impacting sales outcomes can be challenging, especially if an organization relies on manual methods like spreadsheets for managing commissions. Sales operations can’t get a complete view of what’s happening with data scattered across multiple spreadsheets and without a complete view, organizations struggle to understand ties between plan elements, sales outcomes, and motivated behaviors.
Incentive compensation management SaaS provides the best foundation for greater visibility into compensation plan performance, but it’s critical to consider how a plan is shaping sales behaviors and what outcomes are actually being driven.
When planning, analyze the plan performance from the prior year based on correlation to revenue and pair with objective analysis of exhibited sales behaviors. Are you driving the right behaviors? Does your plan promote unexpected or undesirable behaviors?
2. Focus on ROI
Naturally, every organization is looking to get more return out of their incentive compensation budget. Executive leadership expects a boost in sales revenue compared to dollars spent, but providing proof of incentive compensation ROI can be challenging, especially if you are using spreadsheets or a solution that doesn’t include correlation analysis.
To analyze compensation plan ROI, an administrator needs to correlate each plan or plan element with associated revenue and spend. Or they can look at strategic metrics like how much business a plan generates (net bookings) and correlate it with commissions payments to ensure ROI is positive and that the trend line is within reasonable limits. ROI analysis can be extremely difficult on spreadsheets or homegrown systems with limited transparency, especially when you try to understand how each component of a plan contributes to the total ROI.
Leveraging automation with an AI recommendation engine can provide both insight into how much ROI a plan is generating and prescriptive recommendations on how to improve return. When organizations have greater insight into ROI, they can more readily detect costly plan elements that are draining money from the business, but not generating revenue.
3. Emphasize simplicity while planning
Incentive compensation plans grow over time to meet changing needs as organizations expand and evolve. Unfortunately as the business changes, incentive compensation plans also can become overly complex, which creates a challenge for management and while simultaneously becoming more difficult for sellers to understand.
If sales reps don’t clearly understand what activities they are compensated on or what activities they should focus on to get paid, they might either ignore the plan and hope the payout is worthwhile, or spend time trying to figure out the details, which takes them away from selling.
Keeping compensation plans on the simple side, while still having enough variables to motivate different types of behaviors, ensures sales reps understand what they need to do and how they’ll benefit from their actions. Clear, straightforward plans are also easier to administer, streamlining the distribution and launching processes to put sellers on track, faster.
4. Bridge communication gaps
In general, compensation plans with intuitive goals are easier to convey to sales teams, but after plan changers are formalized and distributed, the organization needs to enable sales and close any communication gaps. Every strategic incentive compensation plan comes with a degree of complexity and a plan cannot be effective if sales reps don’t understand the plan’s focus, intended selling goals, and what behaviors will deliver the best outcomes.
When you design an incentive compensation plan, the communication process must be a priority. Sales managers should be aware of potential changes so that they can provide real-world validation and proactively prepare their teams for upcoming changes. When a new plan is rolled out or existing plans are changed, sales reps need to understand how it will result in a positive outcome for the business and how they can best succeed with the new plan.
5. Prepare for change
Organizations need the agility to adjust their sales compensation strategy to meet new and changing goals. Markets change and disruption is a constant force, which makes rolling out a static plan at the beginning of the year and forgetting about it a thing of the past.
Incentive compensation plans require oversight to stay on target and modern organizations need to plan for continuous review to ensure they are delivering the right outcomes and motivating the right sales behaviors. Without proper oversight, organizations can find themselves halfway through the year with underperforming sales reps and customer interactions that are toxic to account health.
As an organization evaluates plan success, any adjustments that need to be made should be modeled with real data to estimate their impact. Depending on how the evaluated plan is performing, an organization may decide to increase quota targets or roll out SPIFs, accelerators or bonuses to support a new goal, whether that’s rolling out a new product or winning competitive deals.
