Are your compensation plans living up to their potential?

Four signs your compensation plans aren’t living up to their potential

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This year more than 90 percent of companies will make changes to sales compensation plans.1 While disruptive, these changes are required to ensure alignment with strategic objectives. But are they effective? Do these changes result in more accurate compensation plans? Do they align with the big picture?

Achieving your compensation goals will lead to higher retention. Your best sales people are expensive to recruit and expensive to train. If you have high turnover, you have a massive cost in the business you want to remove.

According to a recent survey delivered by the Alexander Group, sales leaders consider goal setting as the most challenging aspect of sales compensation management.2 Obviously, achieving these goals drives revenue, but missing the mark creates inaccurate revenue forecasts for the year as well.

With respect to goal setting, best-in-class companies aim to have 80 percent of their sales people achieve 80 percent or more of their quota. Some organizations have performers that hit 50 percent of their quotas, while others have people that exceed their numbers on a constant basis. Where does your company fall on the spectrum?

It’s possible your sales compensation management could use an overhaul. Decide for yourself. Here are four signs your compensation plans aren’t living up to their potential, and what you can do to optimize the process.

1. Underperforming sales reps

If your sales team is deviating more than 20 percent from their quota targets, then you may have a compensation issue. You should look at the “why” to discover the root cause. Your sales managers know the accounts best. They know how your reps perform and are involved in the micro-dynamics happening in particular territories.

2. Disparate data

With data in many different places, multiple stakeholders have access to most companies’ information. You need to analyze how to optimally design quota calculations to hit the compensation objectives. Most companies struggle with this because they are guessing instead of analyzing complete data.

3. High employee attrition

Whether voluntary or involuntary, high employee attrition is another sign that you are likely not paying people to market. Activities that impact your sales compensation plan are not panning out.

4. Plans not complete at the start of the year

If your plans are significantly lagging from the start of the year, you have a process issue. You have people that could be reading through the comp letter and not properly selling. Or, you don’t know whom your sales people are selling to yet or how they are getting compensated. You don’t really know what’s going on.

Turning it all around

Without efficient sales compensation plans, you’re likely to miss the mark. Here’s how you can turn it all around. Assemble a steering committee with key constituents across the different functions of your business. Include sales operations, sales finance, and someone that knows your data. Come up with problem statements and do some analysis to ultimately create a project plan. How will you address the problem, develop your requirements, and look at viable solutions?

Leaders should take this approach and then be sure they understand what is required to have in place for data, processes, and people. Then they can be confident and successfully deploy a solution.

What’s your greatest challenge around sales compensation management? Leave a comment below and let us know.

 

  1. Cichelli, David J. “2014 Sales Compensation Trends Survey.” The Alexander Group. Jan 2014. Web. 25 Oct 2014.
  2. Cichelli, David J. “2014 Sales Compensation Trends Survey.” The Alexander Group. Jan 2014. Web. 25 Oct 2014.

 

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