As is often the case, this year is probably flying by faster than one could possibly imagine. High workloads and competing interests can lead to sales compensation and sales effectiveness solutions failing to get the attention they need and deserve. One critical element to achieving success emerges through following a reasoned and strategic plan for how to tackle this year’s sales coverage and sales compensation needs. Without this plan, the year may whiz by in a blur with little real change and a lot of unfulfilled opportunity. Our clients frequently ask us how they should prioritize some of the most important activities across a new year, so we will use this article to share our observations on best and practical practices that we’ve seen across hundreds of organizations.

First Quarter – Finalize Plans, Communicate, and Start Administration

In many cases, the first quarter includes an urgent need to finalize sales compensation plans and quotas for the new year. Finishing the plan designs and getting formal approval should be job number one if those tasks are lingering from the prior year. With plans completed though, the traditional first quarter focus follows:

  1. Communicate Plan Details Within the First Two Weeks. Such information primarily includes any changes to plan measures and mechanics, if not all plan-related details like the actual quotas. If possible, an in-person kickoff meeting is best. We recommend sharing the “what” (plan details), the “why” (why the plans are changing – the strategic intention), and “how” (what process the company followed to decide on the changes). You can also add another “how” – clearly answering the question: how can salespeople be successful and make good money on the new plan? Telling them directly is a wise strategy.
  2. Communicate Goals by the Start of Month Two. When it comes to goals, we find most companies are not ready to share goals within the first two weeks, which would obviously be ideal in terms of aligning to plan rollout. But under this scenario, we support revealing the plan details at the start of month one, with an expectation that the goals themselves will follow as soon as possible. That approach should work for both commission plans and goal-based plans, although it can cause a snag with Individual Commission Rate (ICR) plans where the commission percentage is calculated based on the goals. Even for those though, the plan framework, e.g., measures, crediting approach, etc., can be shared earlier. We’d rather not hold the plan design details hostage to the final quota decisions, and we also would rather not rush out inaccurate quotas too early just to get them out! So separating the plan details and quota communication events is often an effective solution.
  3. Make Final Updates to Your Administrative Processes and Systems. If not already completed, you have to finish these changes quickly in Q1 before you can process initial payouts. If for some reason the process is not set for payments that should occur, you can use a draw approach until ready, but that clearly is not a preferred practice.

Special notes – for those involved with international plans in countries with Works Councils, you’ll of course need your plans done with enough time for the negotiations and finalization. Meanwhile, for those in California, new laws require commission plans to be clearly documented and signed off by employee and employer. That has caused some to interpret that new plans need to be finalized, communicated, and confirmed by January 1, although most of our clients have not been aligned to that interpretation. Whatever the case, clear plan documentation is an essential part of the new laws.

Second Quarter – Ongoing Plan Review and Early Stage Strategic Thinking

With the plan year in full swing, the second quarter focus should break into two primary focus areas:

  1. Perform Ongoing Plan Review and Maintenance. Plan issues usually escalate in the second quarter, and the compensation team should be vigilant to address concerns and ensure the plans are working as intended. One hopes no plan tweaks or changes are needed, but you’ll want to start capturing feedback coming from the field. Best-in-class organizations will often formalize this feedback by creating an online field survey about the new plan, reviewing the rollout approach, gauging their degree of understanding, and collecting any initial perceptions on the plan’s ability to motivate and drive performance.
  2. Consider Upcoming Deployment or Role Change Needs. In many cases, the effort to change sales roles and coverage can take months to identify, plan for, and implement. To ensure success, we recommend companies start trying to identify these topics even as early as the Second Quarter. By way of example, we had a recent client looking to merge three discrete sales teams (all selling to the same accounts) into an integrated model featuring an account manager/owner with sales specialist support. We spent the last month of Q2 doing focus groups to test the concepts, validate the opportunity, and identify potential pitfalls. Without this step occurring this early, they would not have been able to tackle the significant cultural and logistical change management challenges in time for a go-live in first month of the next year. Planning and successfully implementing significant changes typically requires this kind of runway.

Third Quarter – Plan Assessment Steps

In the Third Quarter and throughout the plan year, topics such as plan administration, review, and maintenance should be ongoing activities. But in terms of unique steps, Q3 is the pivotal quarter to start your formal sales compensation assessment steps, which include:

  1. Perform Interviews. This step should include talking with corporate stakeholders, sales managers, and field personnel to understand upcoming strategies, market opportunities, evolving role definitions, and sales compensation plan performance and needs. The intensity of the interviewing phase should vary based on company needs, but it is essential to collect feedback from various levels. The field survey from Q2 can support these efforts, or you could consider running it now in Q3 if not pursued in Q2.
  2. Begin Reviewing Pay and Performance Data. To supplement the interviews, you should examine the pay-for-performance correlations, quota achievement distributions, and overall payout ranges and upside, among other targeted analytics. This analysis should be by role and can consider multiple data cuts based on quota size, tenure, and other descriptors. While you can start this work on Q3, you will likely want to update it in Q4 when more of the plan year has been completed.
  3. Collect Market Pay Data and Perform Market Pricing. This again is an appropriate annual or bi-annual practice, which can require more or less intensity based on your particular needs. Market data can provide useful and “directionally correct” information on market trends and serves as the “science” part in the “art and science” of determining appropriate pay levels. The “art” portion of course is your actual experience recruiting and retaining the appropriate sales talent.
  4. Begin to Craft the Plan Assessment Story. Whether you actually hold a formal assessment meeting at this time or simply collect the data related to it, you’ll want to have made good progress assessing the plans by the end of Q3. The assessment story should include a review of current plan performance as well as gaps or issues that may need to be address for next year’s plan.

In addition, companies that are looking to make role or coverage changes should continue performing the relevant analytics and draft first cuts at what roles people will fill and which accounts will be assigned to each person. Ideally, some notion of workload planning should be incorporated into how accounts are assigned and how many an individual salesperson can optimally support.

Fourth Quarter – Plan Design, Plan Communication Preparation, and Final Strategic Decisions

This is where both the sales compensation design activities and any strategic implementation activities really heat up. In terms of the incentive designs, you should be sure to:

  1. Hold the Formal Assessment and Design Meetings. We recommend pulling together relevant stakeholders from sales, finance, HR, and systems to review the performance of the current plan designs, identify needs for the upcoming designs, work through options, and finalize decisions on what the new plans should be. In our consulting work, we find the design teams usually include eight to twelve people and require three to four meetings, depending on the magnitude of the potential changes and the efficiency of your design and decision making process.
  2. Perform Cost Modeling and Connect to Budgeting Process. New plan designs should be tested for cost appropriateness using a scenario-based approach. These findings can sometimes lead to tweaks in the plan recommendations and in some environments, the cost modeling connects to the budgeting process as an organization considers costs based on headcount, productivity expectations, and the final plan design decisions. Compensation Cost of Sales (CCOS) is most impacted by target pay levels, headcount and productivity expectations, but the plan design details such as threshold usage and acceleration can have some degree of impact, although usually a secondary one.
  3. Finalize Deployment Model, Role Changes, and Coverage Decisions. The outcomes of these decisions can impact all the elements of sales compensation – pay mix, measures, pay line details, crediting, etc. It is essential to share this information as early as possible with the compensation design team to create effective plans efficiently.
  4. Focus on Quota Setting. Quota setting needs to occur both at the macro-level and at the micro-level (territory/salesperson/account). Deployment and coverage decisions can greatly impact the micro-level quotas and headcount decisions have a bearing on the macro-level one as well. None of these decisions exist in a vacuum so tight alignment is required across the strategic decisions, plan design work, and quota-setting process. The final quotas may be locked in after the year completes, but your organization should make good progress on early drafts by the end off Q4.

As plans start to finalize, your organization should plan for and begin working on the communication steps. These normally include:

  1. Craft a Rollout Plan with Assigned Ownership. We normally like to see a senior leader do the initial plan rollout presentation but the sales managers should be accountable to hold one-on-one sessions with direct reports. To enable the managers to be effective, organizations should hold train-the-trainer calls or meetings. The best plan rollouts follow a cascade approach with senior level visioning and messaging, combined with sales manager one-on-one sessions with the salespeople. In one of our clients, they took the sales manager’s communication role so seriously that in Q2, they surveyed the direct reports to discover whether the sales manager held the one-one-one sessions, how effective they found the explanation, and then the degree of plan understanding that resulted. The findings were tied to the manager’s performance review and coaching was instituted to improve future effectiveness.
  2. Create Rollout Presentation. This will be delivered by the senior leaders as well as elements by the frontline sales managers. The materials need to be thoughtful and well-structured to truly help sell the plans to the sales force.
  3. Prepare Plan Documents and Update Terms and Conditions. Again, this would seem like an obvious step but many companies do a poor job formally providing such materials. The Plan Document should be role-specific and include plan specifics and payout examples, while we normally recommend a single consolidated Terms and Conditions document for ease of review and update.
  4. Provide Excel-based Plan Calculators. These tools can be a very effective way to ensure early and deep understanding of new plans. The calculators are programmed by the corporate staff, ensuring accuracy and that the field reps do not spend time programming their own usually inaccurate calculators. This extra step can go a long way to quick understanding and more effective plan impact.

See, that’s it! Simple as that! Okay, maybe it is not all that simple. Helping create improved sales effectiveness and appropriate sales compensation plans certainly takes high effort and a diligent process. While this roadmap does not include every step or nuance, it includes many of the main and biggest categories of work for which to plan. The timing can shift forward or back, but if you stay on these approximate timelines, you should have an effective year and not one marked by late fire drills and a nagging sense that “we could have done better”. Good luck in your efforts to always create better sales compensation plans and better sales effectiveness solutions!