About this time every year, we get lots of calls from people in a panic: “Our sales compensation plan is broken. Do I still have time to fix it for 2018?” The answer is yes, but you’re running out of time.
When done right, sales compensation planning and execution requires being thoughtful and proactive. On the front end of the process, you need to evaluate your plans on three dimensions:
- Qualitative feedback: It’s critical to know how the current plan is perceived within the organization. For senior executives and sales leadership, how well does the plan align with the strategy and culture? For salespeople and sales managers, how motivating and competitive is the plan? Do they perceive it as fair?
- Quantitative analysis: During the qualitative phase, you’ll uncover lots of perceptions from executives and from the field, but you need to test them to ensure that they’re real—and that’s where the quantitative analysis comes into play. For example, if one of the interviewees says that the plan unfairly treats the smallest territories, this should be tested and supported before trying to fix it in the plan.
- Benchmarking: Benchmarking takes on two forms: pay levels and the incentive plan, itself. The former is the traditional way that companies think about benchmarking. How do we compare against the market in our base, target incentive and total pay? Benchmarking the incentive plan is equally important. For example, how much are we paying our top performers and bottom performers? What percentage of sales reps are achieving their quota? Answers to these questions (and several more) go a long way in assessing the health of your plan.
On the back end of plan design, there are several other aspects to effectively implementing the plan:
- Financial modeling: Once you’ve designed the plan, it isn’t final until you can tell your executives how much the plan is going to pay at every performance level. You also need to know how much your top and bottom performers will earn in the new plan, and if any individuals will be negatively impacted in a significant way.
- Communication and change management: Once you’ve developed and modeled the new plan, you’ll need careful communication and change management to get the field to understand the plan, and to act. One of the biggest sales compensation issues today is when the field doesn’t understand the plan. Taking this step will ensure that doesn’t happen, so it shouldn’t be overlooked.
- Systems administration: For a plan to be effective, your administration systems must be able to collect the data, calculate payouts and report on progress on a regular basis. If salespeople don’t know how they’re progressing, then they don’t know how to get to the next level, and your sales compensation plan has lost some of its impact.
While it’s not too late to design your 2018 plan, the clock is ticking. Start now to ensure that you get adequate input on the front end and spend adequate time implementing it on the back end.
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