Sales Compensation Blog

I am very interested in hearing your stories about the unintended consequences of your incentive programs. I think we all have them and we can benefit from sharing them. As the mother of two daughters who have just made it through the teenage years, I believe we are all much better off if we talk to others about the ways they (teenagers or incentive programs) can act out. It gives you perspective, lets you laugh at the absurdity and helps you know what to watch out for.

My Story - Teamwork

So, I'll start. My story happened at an enterprise software company. The company sold expensive software that required expensive service implementations. It was imperative that the company operate as a team between sales, service and engineering. We were constantly making tradeoffs between product features and services, frequently opting to defer features we felt could be ‘managed' by the services team. Services and engineering needed to work together. Similarly, sales needed the services team to help make proposals to clients that were realistic yet within the client's budgets. Teamwork was essential all around.

But it didn't happen. Turns out much of the problem lay in the sales incentive plans. The services team was compensated on margin while the sales team was compensated on software sales. And just to add a nasty twist, the head of engineering was also being compensated on new sales. What happened? The service bids would come in too high (because they wanted the margins) so instead, the sales team got quotes from engineering and gave away the services component. Much friction ensued and I would estimate close to $2M was lost in revenue while customer satisfaction dropped.

Moral of the story: look at the metrics across job roles and make sure your teams are incented to work together.

Do you have a story? I'd love to hear it.

People are using Makana Motivator to analyze their sales compensation plans in new ways and seeing a few surprises while they are doing it. Often times when a compensation plan is designed in excel or worse on the back of a napkin, it is hard to analyze the plan. In addition to being hard to see things in excel, may times the designer runs out of time to really analyze the plans. Here are the 3 plan surprises that I here most frequently.

1. Paying too much for under performance
• People are really surprised by what they are spending for under performance. They never took the time to figure out what the plan will pay out at 50% of quota. I never realized that I am spending that much for under performance is a common comment when they first view their plan payout by looking at the graphs in Motivator.

2. Paying too little for over performance
• People are really surprised by how little they are paying for over performance.Often times the same rate continues well beyond attaining quota or jumps up some but not enough. Wow I thought I was paying much more when they exceeded their target is a common comment I hear when looking at the plan payout above quota.
  

3. Not paying the right amount for on target performance
• People are surprised that the plans they designed are not paying out what they expected to pay out when the reps makes his quota. And to make matters worse, more than half of the plans I look at are actually paying outmore at 100% performance then the designer had intended.

Motivator can help you analyze your current sales plans now.  Once your plans are easily entered in Motivator, you can use the graphs and mini-modeling capability to understand what your sales plans are really paying out.  In the By Total Attainment graph, you can easily see that the plan as designed will pay out the correct TTC (Target Total Compensation) at 100% attainment.  You can also use the sliding bar to change the attainment to analyze various levels of attainment.

Teanna Spence
Compensation Director

If you read Liz Cobb's recent post titled "Is your sales team a team of winners," then you know best practice states that you want to allocate targets such that 60% of your team is at or above quota. You also want your sales force striving to achieve Winner's Circle status, and more importantly, the title of ‘Top Sales Rep.' When you have a good portion of your reps in this position it encourages behaviors that you want from your team:

• Stimulates healthy competition and camaraderie amongst the team,
• Creates more energy and excitement as the year winds down
• Ensures a diligent work effort until the final numbers are tallied

Is your Winners Circle too Easy?

You may feel the Winner's Circle is either too easy to achieve at this level or not deemed special enough by having more than half of the sales force achieving Winner's Circle status. After all, you want to make this achievement prestigious and only reward your top most performers. In this case, set the Winner's Circle goal at a figure somewhere over 110% of quota. This will ensure that only your top performers are rewarded with that special trip or reward. Let us know what works or does not work for you.

Below are two graphs that show two different sales teams quota attainment distribution. The graph is an important piece of analysis you should do before you set your quotas for next year. The graphs show the distribution of performance. The y-axis is the percent of reps and the x-axis is the percent of attainment so you can easily see how many are producing for the company.

The first graph screams trouble but is often what we see. In this case most of the reps have not achieved their quota while a few are well over. Unless you have a completely new team who haven't been in the position for the whole year, the possible explanations all require attention. These kind of curves can occur for three reasons:

• Your quotas and territories are out of balance. Your few top performers have rich territories and do not need to work as hard as others to find business. If you can't rebalance the territories, the quotas should be individualized to reflect a realistic opportunity.

• Your team has the wrong skills. Reevaluate the skills needed for the job and either train the team or make organizational changes.

• Your quotas are overallocated. Many executives overallocate the quotas so they have a better chance of reaching the company goal. However, it is demotivating to the team if they aren't able to reach these artificially high quotas. You are better off hedging your bet by making sure at least 60% are overquota. They will cover for those who don't make it and the team overall will feel like winners.

 The second graph is what you want. A nice bell curve where most of the team is successful. 

As part of your current sales plan assessment you should interview sales reps to understand their view of the current plan. And while you're at it, talk to sales management also. Yes, that's right talk with your sales reps and managers, as many as you can. Ask them questions. No, not yes/no questions but more open ended questions. How has the current plan been working for you? How do you determine what you'll make on that sale? Tell me what you have to do to make the kind of money you want to make? You get the idea. Get some suggestions from them. Ask, listen carefully. You will be surprised what you will find out. You are trying to determine their understanding of the current plan. You can't motivate sales reps if they can't understand the plan they are on.

Try to identify areas of improvement. Sometimes something may be very clear to the sales compensation plan designer but the rep doesn't have a clue what they should be doing to earn that money. Makana Motivator helps you easily create understandable plan documents that are individualized for each person in your sales organization.

Teanna Spence
Compensation Director

As you embark on the planning process for next year, it's an excellent idea to make a quick graph of your team's performance versus pay. By making this comparison, you can quickly see if you are getting what you pay for. All too often, sales plans have been designed with so much nuance that you end up paying some people or job roles more than others for the same overall benefit to the company.

In the picture below, we have a scatter graph of people at their annual performance attainment compared to their overall commission payout. You can see that some individuals are receiving $20,000 at 100% while others are getting close to $100,000. Plans that reset quotas and rate ramps too quickly - either quarterly or monthly can create this situation. Reps tend to hold their sales until the next period where they can exceed the goal.

Making the quotas annual will prevent this kind of gaming. Another possibility is that commissions are earned in an earlier period and not paid until a much later event. This scenario causes uneven release of payments and invites reps to live off their prior accomplishments instead of focusing on new business.

In both cases, you end up with a situation where reps can get higher earnings without delivering the results the company really needs.

Another way to look at this graph is to make the x-axis Bookings or Revenue. It can be even more obvious that you are not providing top rewards to your top performers.

If your graph reveals this kind of inequity, you will have a clear area to improve for next year.