The Coaching Effect Blog

6 Signals a Sales Compensation Plan Should Change

Posted by Kristi Shoemaker

September 1, 2010

6 Signals a Sales Compensation Plan Should Change

Posted by: Kristi Shoemaker, VP Marketing, EcSELL Institute

Our Pillar Partner, Valitus Group, Inc. provided an article for our Resource Library that I thought you would be interested in. It talks about the reasons why a compensation plan SHOULD CHANGE...

Why is it that sales compensation plans change so frequently? Countless sales reps suggest that it's because they finally figured out how to make money on the old plan, so management changes it in order to reduce their pay. In fact, too often the sales force will suspect that any sales compensation redesign effort is an attempt to reduce costs. But rarely was cost reduction the primary objective for change.

What are the real drivers of compensation change?

1. Business objectives - Changes in a company's business objectives will often set in motion a series of subsequent changes in how the sales force is organized, deployed, and rewarded.

2. Go-to-market strategy - Changes in  target market segments as well as the approach by which a company will most effectively reach those markets (e.g., the channels of distribution, sales organization structure, deployment model, and the definition of sales and sales support roles).

3. Customer buying preferences - Changes in the way your customers prefer to buy from you, assuming it's a reasonable and/or unavoidable change, always ask if the current selling roles and the way they're rewarded support that new customer buying process.

4. Role definition - How (and whether) roles are defined is one of the most critical enablers of sales compensation effectiveness. It's only when a selling role is clearly defined that a truly compelling and targeted sales incentive plan can be constructed. And, to the extent any of the aforementioned drivers have changed how you define your selling roles, the sales compensation plan will likely need to change too.

5. Supporting systems/infrastructure - Occasionally, supporting IT systems prevent a company from measuring performance in ways that are most directly aligned with its business objectives. IT's performance measurement capabilities (or lack thereof) often surface as a stumbling block in the sales compensation design process, which is why a stakeholder from IT often participates in the incentive plan design effort.

6.  The old plan is no longer working - For any number of reasons and absent the aforementioned change drivers, sometimes the old tried and true sales compensation plan ceases to work effectively. This is yet another reason that continued monitoring of performance results relative to sales force and sales compensation plan objectives is so important

You should evaluate the need to change the plan on an annual basis. With a sound sales compensation plan in place and absent significant environmental change, it will often need only a tweak as opposed to a major overhaul. At the same time, however, avoid mid-year plan changes unless it's so broken that the business or employee morale is suffering as a result.

Also, maintain a healthy perspective on the role of sales compensation. Don't expect the sales compensation plan to define your business strategy. At the same time, however, don't wait too long after some of these upstream changes take effect to evaluate needed changes in the sales comp plan. In my experience, changes to the sales compensation plan often lag too far behind changes in these areas, creating a real disconnect. Remember, sales compensation is the caboose that needs to follow the strategic engine driving your business.

If you would like to receive a complimentary copy of this research document, including case study examples, visit our September sales management webinar page and request this document (located at the left hand side of the page)


Join us at our  September Sales Management Webinar titled "Leveraging Sales Compensation to Drive Sales Force Engagement and Productivity: Best Practices in Sales Compensation"  Join us on September 13 at 10 PST / 12 CST / 1 EST.

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