Three strategies to better manage sales compensation plans
This story was originally published in The Reward Quarter, Issue 21
All too often, sales compensation programs are the “tail that wags the dog.” While they are frequently the last part of a sales plan to be created, if they are not done right, they can ruin all the hard work you’ve put into your sales strategy.
Why do so many compensation plans go wrong? At many companies, the culprit is poor communication: A recent research report from Sales Management Association (SMA) found that only 54 percent of companies effectively communicate performance expectations. What’s more, only 38 percent deliver compensation plan documentation and quotas on time.
Meanwhile, a different report from Harvard Business Review cited “scattered information and limited visibility into data” as problems for 40 percent of companies. Other times, disputes are the issue: the SMA report found that only 54 percent of companies have a defined process for compensation disputes, and that 31 percent of compensation disputes take more than two weeks to resolve.
Given that your compensation plan is there to motivate sales, these statistics are troubling. More significantly, it suggests that many companies do not take advantage of the tools available to them, technological or organizational.
For example, although many communication issues could be improved by the right software, only 30 percent of companies use technology to help make fast and better-informed decisions, according to the SMA, and a mere 32 percent use technology to minimize time spent on low-value administrative tasks. Similarly, although sales compensation data is crucial for decision-making across the organization, only 19 percent of companies integrate sales compensation data with finance, and only 9 percent with marketing.
So how do we solve these and other common problems in incentive compensation management? Most important, it is essential that you ensure that your compensation strategy achieves your larger corporate objectives. To do that most effectively, we recommend employing three strategies.
Strategy #1: Use the right technology
At high-performing companies, the sales compensation strategy helps keep everyone on the same page. “Everyone” here means not only the usual suspects like front-line sales reps, sales leaders, sales management, and sales operations. When done right, your compensation strategy should tie together a host of other stakeholders:
- finance, which needs your payout information to build budgets
- supply chain, which wants to make sure they can deliver the products you sell
- HR, who manages headcount
- marketing, who is (ideally) promoting the products your compensation plan incentivizes
If this sounds like a lot of people, it should. Compensation (despite having “sales” in its name) is a cross-departmental shared responsibility. That is why it’s critical that you manage it on a platform that can deliver your data to the right people in your organization—not only sales reps (who definitely deserve timely information), but everyone else as well.
This is where technology helps. At many companies, comp data is shared over spreadsheets via email—one HBR study found that 90 percent of companies still use spreadsheets as a primary planning tool. With the sheer number of stakeholders involved, this is no longer a viable solution.
Point solutions, similarly, are unable to grow or scale as your business expands. Today, the most effective tools are cloud-based platforms that provide stakeholders across the organization instantaneous access to the same data. Giving the whole organization a single source of truth, the best platforms respond to changes and updates as they occur.
Strategy #2: Define roles clearly
So, we have briefly described how sales comp data should cascade throughout your organization. Unfortunately, all too often the converse is true: compensation data is not delivered to enough people, but too many people have a say in how the inventive plan itself is defined.
In tech-oriented companies, responsibility for planning and maintaining the sales compensation program tends to fall under sales operations or a similarly-named team. Elsewhere, responsibility can vary widely—in some companies HR manages the compensation plan, in others finance does, in others it is marketing or even IT.
With too many cooks in the kitchen, communications can get messy. Vagueness about responsibility can itself cascade down the chain, leaving reps and leaders unsure what they should be selling, or why.
In Anaplan’s experience, the most successful compensation plans are created by teams that define clear roles before the design process begins. It’s important to take in input from all stakeholders—including reps, who are often overlooked in the plan design process, but who have valuable insight into how effectively a plan incentivized them to prioritize certain behaviors. Responsibility for turning that input into a codified plan should fall onto a strictly defined set of people.
Similarly, fixing a large-scale problem with disputes usually requires etching a dispute resolution process into stone. (If this sounds like simplistic advice, remember that 46 percent of companies have no codified process for resolving disputes.) Decide who will be responsible and what steps should be taken. If necessary, define different processes for disputes of different scales. Doing this can not only save time, but also improve rep motivation, because reps can trust that their disputes will be handled both appropriately and within a predictable time frame.
Strategy #3: Plan for the future
At many companies, managing the compensation plan is an exercise in fighting fires: so many issues arise each day that simply keeping up with them is a challenge. The best comp plan managers side-step many of these issues by planning for them from the beginning, splitting their time between running the current plan and modeling out future scenarios, using data from other divisions in the company—finance, supply chain, HR, and marketing. Doing this keeps your plan prepared for changes coming down the pike.
For example, if you know what products your company will be launching over the next few quarters, you can incentivize your sales team to lay the groundwork for future sales campaigns. By keeping abreast of future territory expansions, you can model potential territory maps to make sure the one you roll out is fair.
Increases to headcount, a focus on a new industry, a revised product roadmap, revisions to the marketing strategy: all may necessitate changes to your comp plan, but if you wait until after these events occur to start figuring out how to modify your comp plan, you’ll not only leave your reps confused, you’ll also add unnecessary delays to your company’s sales cycle.
In an ideal state, your comp plan should feel like a living, breathing entity. The way you get there is through active “what-if” scenario planning, constructed from real-time information from other departments in your organization. Doing this may require you to set specific time aside that is devoted to planning for the future. The more you start incorporating information about the future into your day-to-day comp plan management, the more responsive your plan becomes.
Coping with disorder
Regardless of your company’s size, developing and managing your compensation plan means wading into disorder. There are a host of people to involve, and an inevitable procession of changes to stay on top of. The trick to managing it all is using a platform that connects all relevant stakeholders, gives you the power to forecast the future, and helps specify and maintain clear processes. Do all that, and you won’t be the tail at the end of the dog—you’ll be one of the people holding the leash.
Keyword: Sales Compensation