Compensation management planning can get very complex quickly. Each role that contributes to closing a sale requires a unique incentive plan that drives them to meet company objectives. Most of these incentive comp plans contain multiple measures, goals, and varying rates - the combinations are infinite.
Despite the importance of incentive compensation - sales comp is the second-largest expense item for many companies - most small and medium-sized businesses don’t have dedicated compensation plan designers. That means the challenging task falls to the vice president of sales, or even to the CFO or CEO.
Compensation strategy is just one of many responsibilities that these individuals shoulder, so they only tend to it occasionally, making it all the more difficult.
Organizational Incentive Compensation Hazards
While best practice dictates that companies reward people in varying roles (e.g., salespeople, telemarketers, and professional - service representatives) at each participant’s point of influence, the compensation plans for different roles are often designed within their respective departmental silo, without regard for other departments’ plans.
All too often, the result is that no one person maintains a view of the whole picture. That means no one knows how plans will - or will not—work together. Nor is anyone likely to be sure what exactly the plans will end up costing the company.
Unintended plan consequences include: failure to contribute to the company’s objectives and, worse, drops in revenue due to misalignment of sales incentives, unexpected payouts, and attrition of top performers.
Lengthy Compensation Process
Designing effective sales compensation plans can take between one to five months each year. The design effort includes defining individual roles and plans, analyzing historical data, establishing the incentive-pay strategy, performing “what if” modeling to balance the likelihood of achieving desired outcomes against the cost of doing so.
Even a company with only $50 million annual revenue might well need 5 - 20 different incentive plans.
Labor - Intensive Compensation Effort
Once key stakeholders agree on the plan elements, the designer spends countless additional hours drafting the plan documents - which are legal contracts—for the employees to sign. The plans are reviewed by numerous stakeholders, each of which may make comments that the designer must keep track of and eventually incorporate into the revised document.
After committee review, the documents are copied, and a personal goal sheet may be attached. Then more time is spent answering questions and following up to gather signed copies.
How Sales Compensation Works (or Doesn’t) Now
Since most companies use spreadsheets or other homegrown systems to create compensation plans, designing, documenting, and implementing plans is cumbersome, time consuming, and prone to error.
Expert users may have the knowledge to develop complicated plans using spreadsheets, but occasional planners are likely to be overwhelmed by the complexity.
And doing it wrong can be exceedingly costly: Makana Solutions is aware of actual cases where misalignment resulted in unintended payments of $1,000,000, $8,000,000, and even $70,000,000.
There Is a Better Way
Motivator frees you from the mundane aspects of plan creation, modeling, and calculation and reporting, while leading you to create the best possible plans.