Blog Article

Making effective sales compensation changes for 2015

Posted by Michael Vaccaro

Michael Vaccaro

Running a good review / redesign process in the fall

For many companies, autumn is ‘crunch time’ for implementing sales incentive plan changes for next year. Given the limited amount of time available before changes need to be rolled out, how should companies make use of these remaining weeks as effectively as possible?

Certainly, running the sales incentive review and redesign process with minimal interruptions can be challenging enough, given a compressed time frame and with the sales team often otherwise focused on trying to deliver a strong finishing quarter. But there are opportunities for the sales compensation team to earn credibility above and beyond mistake-free efficiency, without bogging down the process.

Here are five opportunities we suggest:

Run at least some ‘quick and dirty’ pay/performance analyses on the incentive plan. In our experience, most sales and business leaders will appreciate a few basic answers about their incentive plans:

  • Did the previous incentive plan changes we made work?
  • Do my top performers make more than my medium and low performers?
  • Do I get enough bang for my sales compensation buck?

Kicking off the review process with fact-based answers to these questions will demonstrate a business perspective to the effort, and can often be developed with simple spreadsheet tools.

Keep basic strategic questions in mind. For example:

  • Is the incentive plan driving the right sales behaviors for helping the company to be successful?
  • Does the incentive plan ‘fit’ well with other sales force characteristics – for example, its skills culture and management style or tools, etc.?
  • Can the plan be supported adequately?

Asking about these during group discussions of potential plan changes keep ideas from straying too far from good design principles.

Actively look to prune the plan. There is often a tendency to want to add new items, measures, policies or contingencies into a sales incentive plan, based on new priorities or situations that occurred during the previous year. After a while, these items can accumulate and make a simple plan complicated to understand and administer. Ask if there are plan elements that have outlived their usefulness, or have not been needed in more than a handful of instances, or just make simple messages complicated. If something is being added to the plan, see if something can be taken out as well.

Get in front of goal-setting. Many incentive plans pay out based on achievement of targeted outcomes. Setting targets poorly (for instance, without much relation to the ‘facts on the ground’) will either decrease the motivational power of the incentive plan or cost the company more incentive pay than it should. Since no one is clairvoyant enough to set perfect goals – design incentive plans so that there is some allowance for mistakes out of the sales teams control – for example, by using performance ‘thresholds’ below target that pay a minimal amount should the goal prove to be too optimistic.

Test for unintended consequences. Look at the plan from the sales teams’ shoes. If you were operating under the incentive plan, what might you do? Can you see a way to win under the plan? That will be important in communicating the new plan. And from the company’s point of view, what can happen if sales performance is much higher than expected, or much lower – will strange payouts result?

Finally – keep notes on what worked well for next year!

Any other tips and tricks you have used that you can share?

 

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