Sales Compensation Blog

Incentive  Comp is one of the greatest levers you have to drive strategy. Here are 10 steps that will help motivate your sales team to deliver the results you need. Download the the printable PDF "10 Steps to Great Incentive Compensation," here.

I am going to give you a sneak peak here:

1. Identify the job roles that support your go-to market strategy.
   
2. Include all customer facing roles, not just sales people.
3. Define 2-3 tangible measures for each role.
   
4. Use a relevant mix and upside for each job role.
   
5. Model your incentive compensation cost exposure.
   
6. Set expectations with clear documentation.
   
7. Pay correctly and on-time.
   
8. Share performance stats with management and team members.
   
9. Evaluate and make changes when necessary.
   
10. Go to Hawaii and celebrate your success.  

To download the full PDF 10 Steps to Great Incentive Compensation here.

We have written about the importance of tracking sales performance before, but wanted to revisit based on what I have seen recently. Many SMB's are missing an opportunity. And that opportunity, put simply, is that the act of showing people where they stand on a goal, motivates them towards that goal.

As a teen I used to wrangle for a dude ranch in the Big Horn Mountains of Wyoming. Even if we were days out, as soon as we started heading home, the horses and mules picked up speed. The closer we were to their corral, the faster they would go. In fact on one trip, a pack mule named Bernard was so anxious to get home that he broke free and into a gallop.

My horse Bill and I had to cut him off on a narrow trail. Now that was adventure. Amazingly, the same motivation works for humans.

Do you know why fund raisers keep using those red thermometers, because the rising indicator motivates additional donations.

So my point is that even if you have the best comp plan for your sales team, many businesses lose significant motivating value by not providing clear, timely and regular visibility on where reps stand vs.their goal. Every organization has Bernards, they just need to be let loose.

See how we make sales performance management easy with our Sales Portal and an integrated one for Salesforce.com here. 

Based on some pretty extensive research it turns out that sales people are easy to spot using the Meyers-Briggs personality test: ENFJ's tend to make the best sales people(E = extrovert, N = intuitive, F = feeling, J= judging). They are described as:

• Genuinely and warmly interested in people
• Value harmony, and good at creating it
• Exceptionally good people skills
• Loyal and honest
• Creative and imaginative
• Enjoy variety and new challenges
• Get personal satisfaction from helping others

So how does a personality type tie to compensation? Well think about it. Do you really think if you are an accountant (typically ISTJ's) or a teacher (typically an ESFJ) that you are willing to take on the risk of having 40-70% of your total compensation vary based on your ability to convince people they need a product or service that you provide? I would venture to say no. Your personality type probably isn't well suited to handle that kind of pressure but sales people thrive under pressure. They love to compete. They enjoy talking to new people and learning new things. That's why sales people need to have their own compensation model. And even within sales organizations different sales roles require a different level of incentive compensation mix.

And when you want to build the right kind of incentive mix for your sales people it's important to consider a few things: what are they selling, who are they selling to, what are the primary objectives of the role, etc.

To find out if your comp plan is doing what it's supposed to do, grade your plan here: http://www.makanasolutions.com/compensation-Plan/

Over the last few weeks, we've been having a great internal debate about certain comp plan elements we've been running into. Our debate centers on what is the ‘best practice', and as usual, it depends on the goal. It seems many of the unusual "tweaks" happen when sales and finance are trying to balance motivation of the sales team (sales) with conservation of cash (finance).

Let me be clear about Makana's position on best practices - we believe the plans need to motivate the individuals to execute the tactics that support the company strategy. Companies go through stages. Sometimes the focus is growth. Sometimes the focus is cash. Often it can be both.

No matter the stage of your organization, communication of the strategy is paramount and the incentive plans communicate the most. They simply are the most powerful lever you have to drive strategy and get the sales performance you want.

We've learned, in our years of consulting on incentive compensation plans, the conversation about how your incentive compensation plans will drive strategy typically requires facilitation - especially between these two groups: sales and finance. Since most plan documents are so convoluted and there is no common way to visualize the ‘system of incentives' being designed, each group tends to adapt a position based on a core belief rather than the strategy. Most finance executives want to hold commission payments until cash is collected. Most sales executives want to pay commissions at bookings. Many of the ‘tweaks' add nuances at both events that make it hard to calculate and report adding cost and reducing motivation thereby not satisfying either.

We have developed our alignment view specifically to facilitate the conversation so you should have to truly align your plans with strategy. We hope you enjoy the conversation.

It hit me that trust really is at the crux of a lot of things, not just the entire economy, but even in something as basic as sales compensation.

In sales organizations that lack trust, reps are pitted against their managers and finance teams at the end of every pay cycle calculating and re-calculating commissions earned, making sure they are getting the money they are owed. Time is wasted and reps aren't focused on their primary goal, selling. This back and forth between reps and managers or reps and finance doesn't build healthy and happy relationships within your organization and it is just a matter of time before either your top performing reps, your best manager, or your most important finance team member starts looking for an organization without all of the drama.

The goal in this economy especially for mid-sized companies, is to retain and motivate. You may not be able to keep every rep you have because there just aren't that many sales out there to be had, but you definitely want to keep the ones that have been performing for you over time. The way to retain and motivate sales teams is by building trust. Build trust by paying commissions correctly and on-time every time. Provide your sales teams with updated performance reports so issues like declining sales and a potential lack of motivation is noted early, before it's too late and your top performer has accepted a competitor's offer. And if you need to adjust your plans and re-align territories in order to help your top performers reach their goals, then, make those tough decisions now.

Join the webinar on plan adjustments, and learn how a good plan builds trust:

You changed the plan. The rates have dropped from last year. Your '08 plans paid on cash receipt, but the the cash is received in 2009.

What rate should you pay?

Of course the rep wants to be paid the higher rate. This is a common issue when transiting from one plan year to another, especially if the quota is received at a point other than bookings.

Some of the things to consider when answering this question:

1. What is the point of sale in which the sales rep receives quota relief? Booking, Cash Receipt, Invoice?
2. What were the rules in affect when the quota relief took place?
3. Is the rate determined at that time?
4. Did the point of sale change between the old plan and the new plan?

Pay special attention when you are changing from a bookings based commission plan to a cash receipt based commission plan. Make sure you are not paying twice.

A well written plan will have the rules spelled out clearly. Deviation from the rules should be done carefully and need to be well documented. Keep in mind, many times the exception becomes the new rule when it comes to sales compensation.

Q1 is over. Did you get the results you wanted?

Now that the first quarter results are in and your team is eligible for their quarterly bonuses, it is important to evaluate if your compensation plans are delivering the results you wanted. If your answer is "no", it's time to make a mid-course adjustment.

First though, you need to be measuring results and sharing the details with your reps and management. If you can't measure and share, clearly that's another issue. Click here for help solving that problem.

If you aren't achieving the results you want, revisit your incentive plans. While there can certainly be other reasons such as the economy, poor goal setting, lack of training etc., it may be that your sales comp plans are directing unintended behavior.

Evaluate Plan Documents & Communicate with Reps
Begin your analysis by looking at your plan documents and talking with reps. Many companies with complex, convoluted plans find that it is common for reps to only "get" the plan after receiving -- or not receiving -- their quarterly bonuses. If you suspect this to be the case, check out our other blog entries that can help you improve your communication:

• Do you know if your sales team is motivated? Ask them.
• Communicating your Sales Comp Plan

Strategy Alignment
If you feel your team understood the plans correctly, the next thing you want to do is check for alignment to your overall business strategy and goals. Examine the key elements of the plans for each job role side by side.

The most important areas to check for strategic alignment here are:

• What is being measured? Orders, profits etc.
• Are these measures the best ones to support your business strategy?
• Does your employee have enough control to influence the customer in this area?
• Are the goals achievable based on the assigned territories?
• Do you have common goals for teams? Or are they working at cross purposes?

How many payout components do you have? Are your priorities clear?
The Motivator alignment view (shown above) provides a compact way to consider the impact of your plans.

We have found that executives who discuss the alignment of their plans while looking at them in this view end up honing their strategies as well.

To learn more about how to evaluate sales performance and some sales performance best practice tips please register for our webinar here: Sales Performance.

We put together a short survey to help you determine if your comp plan needs help. Answer the 13 Multiple Choice questions and we'll give you a grade and recommendations as to how to adjust your plan to make them more effective . Fill out the survey here.

It's a great way to get free expert advice on your plans - tell us what you think!

Here is the short list of jobs where people aren't currently with incentives:

• Government employees
• Service workers
• Accountants
• Health care workers
• Teacher (this actually varies district by district, some pay for student performance)

Then there are the jobs that get incentive payments even though they aren't exactly called that:

• Lawyers
• Restaurant Workers

And then there are groups where I think that they should be paid with a certain level of incentive in order to increase productivity or satisfaction:

• Government employees- imagine if the person paving the street in front of your house got a bonus for getting it done quickly? Or the person at the DMV window got paid a bonus based on the number of people they help in a day or their ratings in satisfaction surveys?
• Service workers- This is along the lines of restaurant workers, if people are happy with their service they tip and that is a form of incentive.

What do you think? Could there be a way to incent people to work harder especially after years of not being incented to work any harder than they do? Would it motivate, or produce the results we hope for?

My 1989 Mercedes, a reliable companion for almost 190,000 miles, came to an abrupt end of service last week. "Drowsy" as my daughters called him for the "sleepy" transmission, could no longer go, no matter the incentive. What follows are highlights from accelerated version of the American ritual of buying a car, which, through the lens of my occupation, became a study in sales behavior based on sales commissions and incentive compensation.

With no car to get to work and many incentives expiring at month/quarter end - I had 5 hours to test drive cars and make a decision. Important note - I do not recommend this strategy! I did spend many hours ahead of time on the manufacturer's sites "building my car" and emailing to dealers for quotes.

I started this sprint at the dealership right in my town (brand names excluded to protect the innocent). I asked the saleswoman helping me whether she could match the price I received on the Internet from another dealer. Immediately, the manager jumped up from the next cube like a jack in the box and practically shouted at me that they would not do that. "If you buy from someone else- so be it." (Days later I did get an email offering to see what they could do) Clearly they had a profitability incentive commission, but not one for customer courtesy.

At another dealership, the salesman walked me out to the car, the wrong model, opened the driver door, let me sit down, then did not say another word, nothing about the car, what I was looking for, not one word - it was awkward - he was not motivated to sell me this car.

And of course at every dealer, there are those private discussions between the salesperson and the manager - I always wonder what they are talking about: "Ham and cheese today Frank?" "This fellow says he is buying a car today, so keep him here - stall!" I made it to 4 dealerships and test drove 5 cars.

At the dealer I bought from, the salesman stayed 2 hours past his normal schedule to wait for me to decide. I asked him not to, but as he explained to me - he was not going to get the commission if I came back and I bought the car from someone else. In fact they kept the dealership open late, the sales manager and the business manager stayed to process my order. I guess they were all motivated to make the sale. I kept apologizing : "Don't ever apologize for buying a car" they said. When I picked up the car, my salesman told me that I would be getting a customer satisfaction call from the manufacturer and to please rate the experience a 10, he said that if he averages below 9, it's the difference between $20 and $120 per customer or something like that.

So you can see how incentives might influence results. Read how a car dealer in Detroit is using car sales compensation to drive results in the eye of this economic storm.