EcSell Institute 6 Pillars of Sales Productivity Workshop Summary. Photo by Hattie Kingsley Photography.
Instructor: Mark Davis, Towers Watson
"How to design a sales compensation plan that motivates sales reps"
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.
This session was packed with so much information, a blog post can't do it justice. If you would like a copy of Mark' Davis' PPT Deck on Sales Compensation Plan Design CLICK HERE. This is powerful information that will help you craft a sales compensation plan that truely motivates the right behavior.