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Structure and data make sales compensation a straightforward tool to motivate sales. If you understand the business and business goals (are you after growth or profit? do you want to acquire or retain customers?), and leverage data (benchmarks and predictive models), then you can build a robust compensation plan. It is more science than art.
Some attributes of compensation plans that are important for it to succeed are: pay for performance philosophy (how much and how steep is the difference in pay from low to high performers), performance targets (what % of your sales team do you want to reach 100% performance) and alignment to outcomes you are trying to drive by sales role. Simple plans and plans which pay as close to the performance event as possible always work well.
In addition, two critical execution metrics that are imperative for a sales plan to work are: communication and adherence.
What do I mean?
Lesson 1: Keep thy rep in the know
I learnt my first lesson the hard way. Compensation plans usually get structured around annual planning time. The sales strategy and sales priorities and process are clear, and you have optics into the sales roles you need and what outcomes you need them to drive. We then proceeded to structure the compensation plan accordingly, aligned to good attributes, and backed with feedback we received through a survey and every conceivable form of data analysis (including monte carlo curves for payouts etc.). The plans were built with cross-functional core team - couple of sales reps and representatives from finance, HR, product, business units etc. Result was a well thought out plan that had the CFO and Sales leaders stamp of approval. Then we rolled out the plans with all the communication material to go with it. It bombed!
Reps had a hundred questions and generally had a visceral reaction to plans that changed, both when payout criteria had altered and payout had dipped. No one had read the communication materials that explained articulately why the plans needed to change. Sales managers appeared as clueless as reps. Sales leaders soon backpedaled on approvals and asked for more review. This was a well thought out structured process – how did we get it so wrong?
It took many 1-1 conversations to peel the onion. No one disputed that the new plan was the right one to implement, for the results we were trying to drive as company. But nearly everyone was affronted that they had no input/ their voice wasn’t heard (a blind survey didn’t cut it) and their fate was being decided by a group of leaders that did not live and breathe selling all day.
The next time when a new plan needed to launch for a new line of business, we instituted a much more collaborative and communicative process with sales. Yes, there was the initial survey. As plans were getting structured, there were a series of meetings with each region. It was a slow dance – compensation explaining the problem that needed to be addressed and proposing an initial solution, sales providing their feedback and calling out considerations we had missed and suggestions to improve the plans. We were firm and disciplined that the plans would not be altered just to ensure rep payout, and sales got the message. The process was slow, but it was inclusive and we heard less rumbling. Sales reps, managers and leaders alike were supportive of the new plans even when payout terms and values differed from expectations.
An inclusive process is hard to scale when you have 1000s of reps across geographies. Tools available today should help – wiki pages, blogs on shared sites and webinars with explanations allowing for comments and replying to comments (so people feel that their voice is heard), slack channels and utilizing the feedback. Cascading the message top to bottom also helps, reps like to hear from managers who they trust more than a centralized function. Recruit sales champions who buy into the plan and can help build support.
Lesson 2: Stick to the plan
This is a hard one. Consider the situation: Plans and Quotas are rolled out with the best of intentions at the beginning of the planning cycle. Six months down the road, reps aren’t making their numbers. Reps start grumbling about quotas being set too high, that plans are not aligned and customer preferences have shifted. Attrition goes up and pressure mounts on sales leaders. They must make their numbers the following quarter and for the year, and you can’t do that without people in their seats. Hiring and enabling a new sales rep takes time. Pressure mounts on sales operations/sales finance to adjust the quotas down. Or launch a broad spiff that for all purposes works the same way as a quota reduction.
The reverse is also true. Quotas are set low at the beginning of the year and finance sees red when more reps than target beat their numbers. Finance then pushes for a mid-year quota increase.
Mid-year quota changes are generally very difficult to roll out in large enterprises. The systems and process required to roll quotas out takes time (read months sometimes) and requires massive coordination between sales opns, finance, IT and other teams. Even if you could pull it off in a timely manner in systems, should it be done?
I faced the situation where not enough reps were making quota. After much debate, a broad spiff was launched that effectively killed a % of quota. What I learnt was that mid-year quota adjustments do a stellar job in demotivating reps.
When quotas are adjusted up, every rep is demotivated. Reps feel penalized for no fault of theirs, and lose faith in the system and process. When quotas are adjusted down/broad spiff is initiated, the high performing reps (the ones you want to keep motivated) believe their achievement is now diminished because everyone does well. As for the rest of the reps, it sets a mentality of expecting favorable change when things get tough, and now they don’t need to work as hard anymore. This is a losing proposition for the company.
It is best to stick to the plan and savvy sales leaders do plan and manage, not just for the short term but beyond 90 days as well. In situations that call for better rep performance, other motivating techniques than adjusting compensation plans may work better. Research has shown that every group of sales people – the laggards, the core performers and stars are each motivated by varied factors, many of which are non-monetary. Competitive lists and more frequent bonus payouts motivate laggards, non-monetary prizes work for core performers and stars, the more the number of prizes the more the motivation to win.
Research on what really works in motivating salespeople can be accessed here
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