Sales Compensation Blog

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

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.

I'm often asked if sales compensation planning occurs only once a year, in advance of a new year. Sales comp planning is really a ‘process' and not an event. You may do the bulk of your planning in a given period of time, circumstances frequently change that require a review of the compensation plan. Here are six (6) factors that may cause you to review or adjust your sales comp plans or structure:

1. You need to create new territories due to an increase in sales or as a result of new hires. Dividing territories usually calls for adjustments in quota allotment and hence adjustments in compensation.
2. You add a new sales role - i.e. a telesales, and you need to not only build a comp plan for the new sales role, but need to add the cost of this new plan to your Cost of Sales and revisit your cost model to ensure the plan is still in-line with financial budgets.
3. You introduce new products which weren't included in the original comp plans. You may need to provide a completely new incentive component, or promote a certain mix of old vs. new products.
4. None of Your sales team is achieving their goals. You may have set goals or quotas at a level that no one can attain. To keep your team motivated and driving forward, you may need to adjust quota levels for your team to achieve success. A best practice would be to structure team goals so that approximately 60% of your team is at or above plan.
5. Your plan is not motivating the right behavior. Your sales team is making money because they have figured out how to ‘work the comp plan' but their achievements are not aligned with company goals. You need to ensure that your entire team's incentive structure is aligned with the company achieving its goals.
6. Your Cost of Sale is too high. You may have designed a great comp plan in terms of motivating your team, but the Cost of Sale ends up making the plans not affordable to continue paying the current incentive rates.

Makana Motivator allows you to manage the dynamic nature of sales compensation changes. You can quickly and easily perform what-if scenarios with inputs such as quota levels, commission rates, staffing levels and territory assignments and graphically view how these changes will impact your sales comp efforts. The modeling capability allows you to verify that the plans you developed fit within an acceptable Cost of Sale budget. Once you have designed and modeled your idea comp plan, Makana Motivator automatically generates a comp plan document using your design inputs.

Larry D'Angelo

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

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.