Sales Compensation – Keeping It Simple

Most of us would agree that it’s a good idea to try to keep sales compensation plans simple, but in practice we rarely find an organization that accomplishes this goal. This is why I now start all sales compensation plan design discussions with the following question: If you can only include one component in your sales compensation plan, what would it be?

This doesn’t mean you are selecting one single component to be used for all roles within your organization. Organizations are comprised of different types of sales roles and sometimes multiple business units; what may work for one group may not always work for another. We encourage you to design sales compensation that takes into account the sales process specific to each role type, meaning an incentive plan for a role focused on prospecting new business could be different than an incentive plan for a role focused on retaining existing business.

From there, it’s important to discuss if whether or not that one component will drive the desired behaviors and results for the majority of their sales responsibilities and if not, what would be missing.

Here are a few questions to consider:

• If there is a key missing component, what is the risk of excluding it from the sales compensation plan?
  
• Could we hold the sales team accountable by including this component in their performance management goals?
  

– This requires support by strong sales leaders who hold their teams accountable to execute the expected sales process.

We’ve seen many companies add complexity to their sales compensation plans by including several components because it’s easier to use pay to incent certain behaviors. For example, we’ve seen companies pay a commission on sales revenue, but then also include several activity-based components in their incentive plan. Now, you may be thinking this isn’t that complicated if you’re already reporting on those activity-based components in your CRM and I would agree with you. But most organizations don’t stop there.

Does it work?

This is a tricky question to answer. We worked with a company who kept it simple and had one component in their sales compensation plan: Profitable Growth. In this case, sellers received a commission on all margin dollars in excess of prior year. The sales team loved the simplicity of the sales compensation design, but in the three years this was in place, the sales team never achieved their overall margin goal or their desired distribution of performance.

It’s hard to assess if this was attributed to the sales compensation design, the performance of the sales organization, or goal-setting (meaning if it was realistic for two-thirds of the sales organization to achieve double-digit profitable growth in this case). What we can tell you is the sales compensation plan was much more of a motivator than a detractor.

Below is some of the feedback we heard directly from the sales team:

• The current sales compensation plan was well understood
• They believed it was fair
• It provided a clear message of what they needed to do

We encourage all organizations to be laser-focused on a simple sales incentive plan design. This allows you to hone in on the other facets of creating a high-performing sales organization.

Written by: Erik Berman, BCR Consultant