Q4 Crunch Time – How to Create Winning Sales Compensation Plans

By Clinton Gott, Co-Founding Principal

Fourth quarter and the clock’s ticking. The pressure’s on to create and roll out better sales comp plans in early January. It may not be an easy, but the right game plan will ensure a winning outcome. Focus on the following activities and questions, and you’ll earn MVP honors in the effort to drive better sales performance!

Define and Confirm Your Sales Strategy for the New Year

Is your organization introducing new products? Are you targeting particular sectors or account tiers for growth? Do you have a targeted emphasis on penetration, acquisition, or retention? You are likely targeting a range of sales strategies and preparing for an effective plan design effort means understanding what the organization is trying to achieve.

Define and Confirm Your Sales Roles and Responsibilities

To have effective sales compensation plans, you have to have effective sales job definition. If targeting a new product, can your core sales team sell it or will you need product or technical specialists to support the effort? If looking for growth in new accounts, do you have a defined hunter role or will your salespeople need to both hunt and farm? Overall, do you know how each role is supporting your sales strategy, and then how your current incumbents and potential hires slot to those roles? Organizations often want to jump to the details of their sales compensation designs without fully understanding what the sales roles will be asked to do.

Assess the Performance of Your Current Plans

Effective sales compensation plan assessments should include both qualitative input and quantitative analyses. You should seek input from the various leaders in sales, finance, sales operations, and human resources. Systems/IT may have input to share if plan administration, data, and reporting have been hot topics. We also recommend gathering input from the field, either through your sales managers, formal project-based interviews, and/or an online engagement study. Every sales organization has a unique character and various stakeholder personalities involved; understanding how well the plans focus and motivate the salespeople is a critical area for exploration.

As the year winds down, you should also analyze the plan’s performance and test the return on your sales compensation spend. How have people achieved against targets? What does the pay-and-performance relationship look like? Does the plan offer the necessary downside risk and upside opportunity? These analyses and others should combine with the qualitative input to form the story of your sales incentive program’s performance, identify change objectives, and point to areas for potential improvement.

Generate New Plan Ideas and Engage With a Design Team

We recommend pulling together critical and well-informed stakeholders from sales, finance, human resources, and sales operations to define plan needs, consider potential solutions, and eventually make plan recommendations for the new year. This can take the form of a two or three in-depth meetings. For each perceived need, the team should identify solutions from the world of sales compensation best practices and weigh the pros and cons. Ideally, those best practices should come not just from things you’ve done before or how your direct competitors allegedly do things, but you can and should look more broadly to leverage best practices across the many sales organizations and industries that exist.

Consider the options within the context of your unique corporate culture and organizational needs. You should look at the plans specifically for each unique sales role and address appropriate questions. Do you have the right pay levels for the talent needed and does the pay mix create the right risk/reward relationship? Do the plan measures support your sales strategy and can they be effectively measured? Are the plan mechanics simple and motivational? Is there enough upside and acceleration? Are there particular crediting challenges or details to define? How will sales goals be set and communicated? Overall, are your new plans aligned to your compensation philosophies, will the reps understand them, and will they drive each salesperson to achieve optimal performance?

Perform Cost Modeling to Test the Plans

Before taking recommendations all the way to final plans, you should perform scenario-based cost modeling. How will the plans perform and payout in a bad year, an average year, and a good year? How do the costs of the new plan compare to the prior plan at the macro-level and at the individual level? Which particular reps will win or lose, and is this displacement acceptable or does it put you at risk? What does the compensation cost of sales (CCOS) look like under different scenarios and do the economics of the new plan designs make sense? If not, you may need some fine-tuning before moving on to truly final plan designs.

Prepare Communication Materials and Define Your Communication Approach

This is a very important final step but one that often gets overlooked or shortchanged. Be sure to leave enough time for it! Create rollout presentations that communicate the what, why, and how of the new plan designs. What are the new plans? Why are we making changes? Be sure to connect the changes back to sales strategies. How did we make the changes? Be sure to share the process and the involvement of (hopefully) well-respected design team members. Make sure the salespeople know they matter and be sure to focus on how they’ll maximize earnings under the new plans.

Sell them on the plans – do not just communicate them. Be sure to have clear plan documents and even plan calculators to aid in understanding. For the rollout approach, wait until the upcoming year starts so you do not distract them at the end of the current year. Once the year begins, we recommend a business leader or sales leader perform the initial rollout presentation either at an in-person sales conference or via a webinar. Then task the sales managers to hold one-on-one sessions with their salespeople to sell the plan, answer questions, and generally do their job as coaches and motivators. Be sure to provide a path back to human resources or sales operations if a salesperson has additional questions and to help support the sales manager efforts.

Get to It!

Believe it or not, most organizations can perform the above steps over a focused 8 to 10 week process. It takes prioritization and the ability to involve the right people. In some cases, outside expertise can help drive the process or provide the sales compensation insights to help an organization navigate the various decision points along the way. The sales compensation program is an important enabler of your organization’s sales performance. Even though the year-end is fast approaching, there is still time to ensure your sales compensation program is well-positioned to drive your sales success in the upcoming year. Use the right game plan and you’ll knock down the winning shot every time!

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