THE TOP 3 REASONS SALES COMPENSATION PLANS FAIL
Common Pitfalls and Avoidance Strategies
An effective compensation plan is critical to attracting the best sales people and maximizing sales
productivity, yet many organizations fail to use this powerful tool to drive sales growth either through
contorted designs or dysfunctional execution. Winning compensation designs are typically very straight
forward but carefully tailored to the sales job and the organization’s go-to-market strategy. It is essential
that the design, internal business processes, and technology are all in alignment so that pay checks and
performance feedback are timely and accurate. There are three things that can really render a sales
compensation ineffective: perpetual redesign, poor communication, and weak execution.
PERPETUAL REDESIGN
Companies love to tinker with their compensation plans and there is rarely a shortage of plan designers.
However, many organizations constantly tweak their plans in an attempt to solve every issue within the
sales division. Too often when given the choice of fixing strategy, sales management or incentives,
executives choose to change incentives, regardless of any proof of this being an issue.
As an example, insurance companies can lose more sales people each year than they can recruit. This is
primarily due to weak training programs, poor candidate selection and spotty sales management.
Nonetheless, companies frequently revisit new agent compensation and recruiting bonuses for managers in
search of a solution. Rather than tweaking compensation one more time, management should be asking
themselves the tough questions –
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What type of relationship do our customers want?
Are we hiring the right types of sales people?
Is our training and management oversight effective?
Are the territories rich enough in prospects to support the number of assigned reps?
Focusing on the wrong questions guarantees the wrong solutions. Not only does this approach miss the
target, but over time it creates excessive complexity, confusing the field and causing administrative
nightmares.
Compensation plans should be modified infrequently and only when the design is misaligned with your
sales strategy or sales roles/responsibilities change.
POOR COMMUNICATION
Communication is the life blood of an effective compensation plan.
A properly designed sales
compensation plan can serve as a powerful platform for communicating organizational objectives while
also linking sales roles to the achievement of these goals. Targets, incentive details, recognition programs,
and attainment need to be thoroughly communicated to capture and maintain the attention of your sales
force.
Imagine how successful video games would have been if they forgot to display running scores.
Unfortunately, too many organizations miss the opportunity to drive home these messages or do a
haphazard job by sending conflicting messages. For example, if a sales executive says that the company is
sales focused and then fails to communicate individual sales targets and objectives to the sales team until
the fourth quarter, then words and deeds are misaligned and the overall plan effectiveness will be
impacted.
The “must-do” communication items include:
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Plan Rational - What is the sales strategy and the philosophy behind incentives?
How is the plan win/win for the rep and the company?
Plan Mechanics - What are the rules around how credit can be earned, for example: targets,
commission rates, territories, bonus rules etc.
Ongoing Achievement Against Plan - How are reps doing against their goals, prior year
performance, club levels etc,?
The technology to report achievement is very mature and should not be an obstacle to delivering this basic
and essential information. Without clear communication at the beginning of the performance period and
regular reinforcement throughout, the incentive plan will not live up to its potential. This is an area where
it really pays to listen to your communication specialists to ensure that messages are crafted professionally
and delivered effectively.
WEAK EXECUTION
Sales people need to spend as much time as possible on productive sales activities. Unfortunately, entering
orders, trying to decipher compensation statements and debating credit allocation with compensation
specialists do not count towards productive selling time. Clumsy business processes and systems will
impact stakeholder satisfaction through untimely pay, payment inaccuracies, useless reports and
underwhelming service responses when reps call the home office for help.
Ineffective processes and systems are typically the result of rushed implementations, weak underlying
technology and/or the wrong people doing the design and implementation work. In turn, recurring rushed
implementations are symptomatic of a weak partnership between the operational executive and the sales
executive. These two players need to jointly own all outcomes.
For example, if the operational executive says it’s going to take 8 weeks to implement and adequately test a
plan for the New Year, then it is the sales executive’s job to make sure the design is signed off by the
deadline. Too often I see the design schedule slip significantly resulting in the compensation team working
double time over the holiday season to be ready for the New Year while the tardy designers are off on
vacation. Wearing down your compensation team weakens the whole organization as they will lose their
desire to rise to the occasion after years of thankless bursts to the finish line.
Given the challenges of getting compensation right and meeting design deadlines, here are a few things that
can be done to stack the deck for successful execution –
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Organize compensation design, operations and service under a single executive
Fragmentation of compensation functions across multiple departments makes solving
everyday problems more difficult as priorities and inter-departmental tensions get in the
way
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Align internal business processes with technologies that can save time and effort
Pull together an end-to-end view of compensation processing from a new compensable
event through to commission results on a report. Streamline the processes and introduce
new technologies where old technologies are a bottleneck or consuming too many
resources
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Re-energize your team
If your team is in perpetual firefighting mode – rushing to hit a payroll deadline, researching
and fixing the last batch of compensation errors and spinning out report requests, then the
point of exhaustion can be reached fairly quickly (or has already arrived). You are going to
have to take very deliberate action to find the time to sharpen the saw in this kind of
environment. Identify back up resources, send your team on a retreat. Empower them to
solve a nagging processing challenge. Do not wait for a disaster before beginning to think
about your team’s well-being.
Design, communication and execution are like a three legged stool, and three legged stools do not stand up
very well with a missing or broken leg. Review your operation and make sure that compensation plans are
straight forward and aligned with your strategies, communication is clear and comprehensive, and that pay
and reports are accurate and timely. By doing so, your organization will be in a position to get the best
performance possible for your incentive dollar.
Compensation Analytics is a management and technology consulting firm that solves compensation processing problems for companies with
large sales forces. We help our clients simplify operations, deliver technology and communicate performance results in a way that optimizes
incentive effectiveness and revenue. We deliver value through a unique combination of domain expertise, technology savvy and a
comprehensive and common sense approach to solution design and implementation.