Practical Sales Compensation – Wrapping it Up

Modeling – Once the foundational components and structure are decided, the next step is to conduct some financial modeling to confirm economic feasibility of the plan.

Entire chapters and articles have been devoted to this subject. Bottom line, modeling is a critical part of the process as it enables the team to understand the aggregate and individual impact of the decisions and changes made to the incentive plan.

If the changes are relatively minor it is relatively simple to create a comparison of each sales person’s pay the previous year and what it would have been if the new plan was in place with the same performance. In the comparison analysis, there are three questions to focus on:

1) What is the amount and percent of pay displacement in either direction? – This absolute figure should not be too high on an aggregate basis (say beyond 20%), or the new plan could de-stabilize the sales force and there could be issues with launching it.

2) Are the right individuals winning or losing? – As the results are reviewed, is there consensus that the individuals who are exhibiting the right behaviors, concentrating on the right accounts and products in a productive way winning in terms of additional compensation? Are those who are not realizing a compensation haircut if they do more of the same?

3) How do aggregate payouts appear between the two plans for the given year? – If there is a large drop-off or increase in payouts, there needs to be an understanding and acceptance of why this is happening and that the finance budget for incentive compensation is aligned. This benchmark – compensation cost of sales (CCOS) – can be observed over multiple years to understand trending and how changes to plans affect this metric.

If plan changes are significant, with many new components and formulas, the optimal approach is to methodically map out the payouts at various levels of performance (e.g., if the overall organization performs under, at, or above expectations). This is important to understand to ensure budgeting is accurate. For example, if your plan has thresholds, decelerators, and high accelerators the impact of varying levels of performance can be material. It will be important to ensure the company is willing to pay that amount for overperformance. And, on the flip side, penalize for underperformance.

o TIP – Devote an entire Design Team meeting to review outcomes. Also make sure there is a Finance representative involved so there are no surprises for them. Also, remember, this is the final iteration of the design process! Expect there to be at least some modifications to the mechanics as the team starts to see the actual expenditure expected from the new plan design.

• Even more communication – At this point in the process, field sales and management will likely be wondering how everything is progressing unless there has been an interim communication. Make an effort to send out another communication from the team. The communication does not have to be very specific, just an upbeat update on progress and perhaps a date when you expect to be launching the new changes (e.g., national sales meeting). Ideally, the communication can come directly from a stakeholder that is part of the group needing an update. It increases the chances of ‘buy in’ since the communication is coming from ‘one of us’.

It makes sense as well to create a comprehensive communication strategy at this stage. This should include an outline of all the key stakeholders that need to understand and approve the changes, the message and main points that should be made, as well as sequencing and ownership of any communication events.
Even though compensation design fatigue may have set in, the importance of seeing the process through to launch and beyond is critical.

o TIP – Bring in an outsider, e.g., someone from the communications department if one exists, or a person particularly adept at wording and PowerPoint. This individual(s) can create materials, giving the team something to react to, and lessening the workload for them. Further, the individual’s objectivity will help to ensure the details are simplified appropriately for your target audience.

• Updating systems and reports – Preparing IT and/or HR’s compensation system leaders for what’s to come is never a bad idea. In fact, as soon as there is initial consensus around issues like performance measures, pay structure, and such, sharing that information enables those functions to begin tackling how systems will be able to track and report results and payouts accurately. This is particularly important if there are new measures being introduced, or there are a number of moving bits and pieces that increase the complexity.

If tracking and reporting activities have been a problem for the organization, articulating the process for how data will be captured and proactively laying out what the ideal report the sales person and sales leadership will receive, is worth the investment of time and effort.

o TIP – If possible, review other companies’ payout report layouts to get ideas for how yours could look. Also, survey or ask for input from the sales force about what information would be most helpful to them, and how they would like to see information presented. They often will have very specific advice.

• Plan Launch – Team Presentations and One-on-one discussions – Launching the new incentive plan is a critical step to ensure that all the efforts expended in all the other steps are not in vain. Updating documentation and putting it on the intranet site is not going to cut it. Slightly better but not satisfactory either is an e-mail announcing the new plan and telling everyone to read it. Even so, both of these approaches are not uncommon, but generally lead to confusion, misunderstandings, and all kinds of other undesirable outcomes.

An ideal approach is getting all the sales people together either in one group if it’s manageable, or alternatively on a webcast, with separate follow-up live sessions with their direct manager, most preferably, one-on-one. This way, they are most likely to get a thorough understanding of the program and how they can maximize their earnings, and they also get a chance to ask specific questions in a less daunting situation. With larger sales forces, it can also make sense to create an e-mail address where they can address inquiries, with answers being shared with the broader population. .

Any communication materials created should be as clear as possible with numerous examples showing payouts at various levels of performance, as well as a section covering anticipated questions or points that should be particularly emphasized. If Managers are going to lead sessions on their own, they should have concise talking points and preferably some pointers beforehand to ensure they are consistent and don’t provide any erroneous information. This is also an opportunity to share or reiterate the objectives of the sales organization in the coming year, so be sure to include slides and information on this topic segueing into how the sales incentive plan aligns with these goals.

o TIP – If you included one or more field sales management/leadership on the Design Team, have him/her be one of the presenters in the broader presentation. Also make sure the process utilized is communicated, with a heavy emphasis on inclusiveness (if the “inclusiveness” portion of the Getting Started section was followed!)

Parting Words:

Sales compensation design and implementation is rarely smooth and easy, but given the importance of this tool to motivate a sales force and ensure they are focused on the right behaviors and results, it is well worth the effort to get it right. Best of luck!