This is a common complaint I hear from CEO’s. At some point during the year they finally realize just how much they are paying their bottom performers and just how little sales these reps are closing. This mismatch in pay for performance is related to two underlying problems in the sales compensation plan structure.
To understand this problem better, first you must define what underperformance means to you. Is it 50% of quota, 60% of quota, 75% of quota.
When someone surprises you with a dozen roses, a night on the town, or a weekend away, you may be pleasantly surprised, maybe even stunned by their action, but not shocked. However, if one day you find yourself skiing really well down the mountain then suddenly are airborne because you failed to see the mogul, now that is a real shock! When it comes to commission plans, revenue surprises and shocks are never a good thing!
It is that time of year for most small to medium sized businesses where you have to determine your company strategy and your matching sales strategy. What we see time and time again working with SMBs is that they overlook a very key part of the strategy. The hole in your strategy is forgetting about the behavioral mechanics behind your sales compensation plan and aligning that with the corporate strategy. It is very often that in a small business the owner’s background is based on whatever
Not directly tying the sales commission plans to the company’s current revenue strategy is a problem that I often see with many small and medium size businesses. These executives have designed the company’s strategy for 2015 but miss a critical step that will lead to revenues being below plan. That step is to align the sales compensation plans to this defined strategy. Too often companies are afraid to change their commission plans so many choose to leave them as is even if they are not working optimally.
Sales compensation or commissions are viewed by some people in the C-suite as being nothing more than just a line item on the profit and loss statement. A “necessary evil” so to speak. They feel that they have to pay the sales reps something for their efforts, over and above their base pay. After all, they are the ones trying to sell your products and bring in money for the company.
You’ve heard the old saying that you can have too much of a good thing. Well that is exactly what came to mind when a CEO said that he has the exact same sales organization for more than 5 years. That’s right – no one has left this organization in 5 years! I asked him if his company was on target to reach his strategic goals for this year and got the “well sort of”, kind of answer.
Fortunetellers and crystal balls are great for Halloween fun but not for running your business. Much of what the sales compensation analyst deals with every month feels like guessing or at best looking into a crystal ball to see what will happen.
Each month the finance team is responsible for projecting the incentive expenses and associated revenue. So how do compensation analysts accomplish this?
We help many small to medium size businesses automate their sales compensation process, so we get to see a lot of different commission plans and get to offer a lot of best practice advice. One of the many areas we discuss with our customers is deciding on the total incentive amount and setting the commission rates. During this discussion we find time over time ONE thing that the customer often overlooks…but before we get to that let’s talk about this process a bit.