Sales Compensation Blog

Comp plans created solely by sales executives will emphasize incentives and motivation.  Plans designed by finance will be skewed toward ensuring affordability.

The best  sales compensation plans balance these and other corporate requirements. So when you are developing your comp plans, get input from multiple constituents to help you achieve the right balance.

One person needs to lead the sales compensation planning process.  The leader gathers information, opinions, and advice from other team members, and keeps the project on track and on schedule.  The team leader must also determine the approval process and make sure that "sign off" occurs at the appropriate stages of the project.

The sales compensation team should involve the following:

• The CEO: provides key guidance on the company's strategy
  
• Finance : delivers plan affordability guidelines and sales goals.
  
• HR : contributes job descriptions, base salary, TTC (total target compensation) and organizational structure.
  
• IT: delivers transactional data used by the compensation plan and information about the ability to implement the proposed changes to the plan.
  
• Marketing: presents upcoming campaign strategies that will influence quotas.
  
• Participants: advise on what worked and what didn't work in the current plans and, towards the end of the process, how they perceive the proposed changes to the plan working.
  
• Product Management: informs on road map for new releases and new products which can also influence quota.
  
• Sales Management: analyzes the attainment distribution of the current plans and explains why they may have fallen short or exceeded the goals.
  
• Sales Operations: provides their analysis of the current plans, as well as territory alignment.
  
• Legal: reviews plan to ensure that they are in compliance with current laws, regulations and internal policies.

Small companies will find one person on the team may fill multiple roles.

With your team in place, you'll ensure your sales compensation plan is within budget, is primed to motivate your sales team, aligns to strategic goals, and is well communicated across the organization.

So many companies wait until the last moment to review their plans and modify them that there always seem to be an inevitable craze to model and document the changes. The evidence is everywhere:

• Overnight sessions before the kickoff meeting putting the final "tweaks" into the plan documents
• Incentive programs that drive unintended behavior
• Plans for different job functions that look like they come from different companies
• Dense documents that are hard to read and full of ambiguities.
• And the list goes on...

So, I say, get started now.

Now you might say - "we haven't finished our strategic planning so what can I do?" Turns out there is some excellent analysis you can do now that could not only inform your comp plan design process, but also be of great help with the strategic plan. Here are 5 things you can do now to help:

1. Assemble ALL of the existing sales plan documents and create a master view that allows you to compare the most significant components side-by-side. You want to understand the earning potential of each role, the key measures and goals and the value to the individual for achieving them. (Check out our alignment view for an example.)
2. Review your customer segmentation. Check to see if your territories are adequately assigned and your team has the best skills to address your most important segments.
3. Assess how your reps spend their time. Understand what percent of their time is spent finding new business, working with existing customers, or doing internal administration. Consider adding job roles if you identify inefficiencies.
4. Look at the quota attainment distribution of your direct sales reps. Create a graph that shows the percent of reps at each level of attainment. See who are well above quota, at quota, and below. You should have a nice bell curve. If you have a U shaped curve....you will need more time planning! Your territories and quotas may be seriously out of balance.
5. Understand what you are paying in incentive compensation by order. All too often this information is so buried in spreadsheets that you don't really know the cost and can be overpaying when multiple roles are involved.

It is never too early to start planning for next year's sales compensation plans.

That said, the problem with starting to design your sales compensation plans before your company strategy is known is that you may design great looking compensation plans but they may not help your company reach its goals. You need to make sure that the performance measures for your compensation plans will support your company in reaching its strategic goals. So designing sales compensation plans without keeping the strategic goals in focus could result in your sales reps delivering something else.

If the strategic goals are set, you can keep them in focus when designing your plans. You can also ensure that the quota is accurately deployed. So if your company needs $10m in revenue and you have 5 sales rep, each rep can carry a quota of $2m. But if you company goals are now $12m, you now have the option of looking at increasing the quota for the existing reps or adding a new head.

The alignment view and modeling that is included in Makana Motivator will help you design plans that support your company's strategic goals.

Teanna Spence
Compensation Director