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 technologyAt 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