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."

• 18% of companies surveyed will change incentive opportunities
• 12% will increase their emphasis on profits
• 38% will change performance expectations

And according to The Alexander Group's, "AGI Sales and Marketing Benchmark Reports, Guide to Sales Compensation Survey," 93% of companies surveyed will make changes to their comp plan

But, rebuilding or even worse, starting a comp plan from scratch can be scary, especially if you are looking at an empty Excel spreadsheet. But Makana has an easy self- service solution that is available online.

Join us on February 19th to learn how AutoSmart America, an auto dealer in downtown Detroit, used Makana to rewrite comp plans that motivated sales teams and increased revenues.

One of the most common unproductive tasks sales people are frequently compelled to do is their own commission calculations and accounting. This practice, often called shadow accounting, is an entirely wasteful process that uses valuable hours that salespeople should spend selling.

It boils down to an issue of trust. Does the rep trust the system that the company has in place? Does the rep understand the commission agreement in place? Can the rep "see" what will be paid out in the future? You can eliminate this need for 'shadow accounting' by making incentive structures less complex and build trust in your plans. When sales reps trust the plan, they feel that the commissions that they are being paid are accurate. Therefore accuracy is not the issue, the belief that the plans could be inaccurate is the issue. You can start by asking this question: When the sales rep gets their plan document to start the selling year, is that document understandable, concise and clear? If you have used Best Practices when building your plans, people will be able to see where they can make their money and not have to dig through the plan. The plan document will be able to communicate these ideas simply if there are fewer than four measures that they will be paid on contained in the plan. The easier is the goals of the plan are to understand, the greater the trust and consequently more time will be spent selling and achieving both individual and company goals. When a plan is simplified, the fear that there are errors disappears and the "shadow accounting" problem soon dissipates.

Christopher Mason
Director of Sales

Recently, we held our monthly live Best Practice Webinar,

Common Pitfalls in Sales Compensation with sales comp expert Beth Carroll of the Cygnal Group.    It drew record registration and attendance highlighting how starved people are for assistance.

Beth and Makana Soltuons’ CEO Liz Cobb walked attendees through the most common pitfalls in sales comp and how to avoid or rectify them.  Their presentation drew the highest satisfaction ratings of any of the previous 6 webinars we have recorded.

We asked attendees in the post webinar survey which of the pitfalls they had experienced, and the results were equally amazing – see the below list.  96% of all respondents were experiencing at least one of the pitfalls and 65% of those were experiencing multiple pitfalls.

Sales Comp Pitfall and % of respondents that have that pitfall

• Plans with unattainable goals                     47%
• Plan that don't motivate                               41%
• Plans that overpay or are too costly         34%
• Credit wars among team members          34%
• Plans with too many measures                  29%

As Beth and Liz point out in the webinar – a lot of these can be avoided or rectified without too much effort.  You can watch the recording to learn more about these pitfalls and how to avoid them.  Let us know what you think.