Sales Compensation Blog

There are two ways to structure quarterly bonuses.  Goals can be cumulative for the entire year or divided into quarters.  

Let's review each option with a simple example:  The quota for the year is $1,000,000. Each quarter is 25% of the annual goal.  There is a $5,000 bonus payable each quarter for achieving the goal.

Let's compare them and discuss implications:

Quarterly - The goal is the same for each quarter - in this case $250k. What's the typical sales behavior with this option? Based on my experience consulting with many companies over a range of industries, the sales rep will attempt to hold orders until the next quarter if they are below the quarterly quota and have no hope in achieving it - putting the order in the bank for the next quarter. I have also seen that the rep will hold an order once the quota for the quarter is achieved - again putting it in the bank for the next quarter. The rep's goal is to do enough to get the quarterly bonus and set themselves up for the next quarter.

Year to Date - The rep must be on target for each of the quarters and that target is the year to date quota. There is no benefit to the rep to hold the sale, no game the rep can play. The rep must be on target for each quarter based on the year to date goal in order to receive the $5,000 bonus for that quarter.

"But, Teanna," I hear, "the rep is so far behind on a year to date basis, he'll never get any of the bonus." My usual response:  why do you want to give him a bonus for underperforming?

I also often hear "what happens if in Q2, the rep has already attained $750,000, enough to earn the Q3 bonus without doing any more sales? Would you pay it out?" I respond, "Yes, absolutely. Show me a rep that is on target to exceed their annual quota and earn accelerated rates, and I'll show you a motivated rep."

Time Spent on priorities:
1. Closing deals- 75%
2. Calculating & re-calculating commission payments in Excel- 15%
3. Food- 5%
4. Shelter- 4%
5. Etc- 1%

15% is a number based on my personal sales experience. We had semi-complicated plans with 4 measures both personal and team. Every month Linda would mail our commission sheets. We would compare them to the plan sheets we had on our desktops, looking at every deal, making sure we were getting paid correctly.

Depending how many deals had closed, how complicated they were, etc, it could take the better part of a day to get everything figured out, that doesn't even count if they were wrong, that could stretch into 2-3 days of back and forth with my boss, other reps, and poor Linda the payroll woman. All the while, my productivity on the phones was going down the drain, because as you see above. It's important to get the deals in, but it's almost as important to get paid on those deals.

And I was lucky. I actually got a commission statement; many of my colleagues at other companies wouldn't even know how much they were making on each individual deal. They just got a random chunk of money attached to a check two weeks after the end of a quarter.

This is why we are introducing a new feature in Makana Motivator Pro. It's the Sales Portal. Now, sales reps and their managers can login at the end of the pay period and see how team members are performing against their plan. Sales people also get to see what their commission payments will be (minus taxes). It saves time at the end of the month or quarter, and it keeps everyone motivated towards their goals. It's an easy way to make sure no one is surprised at the end of the month or quarter. Check out the new sales portal feature here.

I have read thousands of sales compensation plan documents over the years. Some I can understand but others take even a comp expert a lot of time to figure out. This is the time of year when many new compensation plans are announced to the sales force. In this economy, lots of companies are changing their comp strategy and no company can afford the lost opportunities that can happen when a sales plan is not clear.

When reviewing your plan documentation answer these questions clearly and you'll go a long way in communicating your plan changes!

1. Can the rep see how much they can earn at target?

• The rep wants to quickly look at the plan document and figure out what he can earn when he achieves his goals.

2. Does your plan document clearly communicate the goals?

• Goals must be clear and precise. The rep needs to know where she should be focusing her attention.

3. Does your plan document clearly communicate the earnings?

• If you have designed your plan correctly, the reps greatest earning capability will be on the area you want them to focus. Let them know where that is.

4. Do the reps get excited about the upside possibilities?

• Let the reps see how much they can make at excellence, it goes a long way towards overachievement.

	By using Makana Motivator, you are quickly able to create plan documents that will help focus your sales reps on the right behavior. Goals and earning capabilities are clearly stated.
By using the mini modeling function of Makana Motivator, you will be able to interactively show the rep how much they will earn at various levels of attainment and compare it to what they made on the previous plan. As you review the plan with the rep and change your attainment assumptions, Motivator will calculate the appropriate payout based on the plan you created.

It must be the season for comp plans because Makana has been busy. We keep a finger on the pulse of the sales compensation industry with various tracking mechanisms: LinkedIn notifications, Hubfeeds, & Google Alerts. In the past week Makana has found the following articles that we found interesting. Some were so interesting we had to comment:

Building Productivity, Creating Direction & Rewarding Change

The "Highly-Leveraged" Pay-Plan. A Right-Fit For The ToughEconomy?

Sales Compensation: It's Not Something You Can Learn In School (Let Software Help)

To boost revenue, change your sales compensation plan

How to Fix a Sales Compensation Plan

It sounds like people, as we suspected, are struggling to find the balance of a fair and profitable plan. It is not an easy thing to do, but Makana has quite a few tools that you can use to help with the process including: sample plans, best practices in sales comp webinar, white papers and surveys to help you get started. Check them out when you get the chance, and if you have any more suggestions we would love to hear them!