A new research report by the Sales Management Association found major gaps in the effectiveness of sales compensation, but also pointed to opportunities for better motivating the sales force. The study surveyed sales executives and found that while companies are increasingly focusing on a total rewards approach to sales compensation, they often fail at communicating the value of the total compensation package to sales teams, thereby losing the motivation and retention value of this large investment. While 89% of sales execs say it’s important to communicate the value of total comp, only 53% of firms say they are effective at doing so.
Perhaps even more surprising, only 55% consider their sales compensation programs to be overall effective, with only half believing that their sales comp was effective at rewarding the right behaviors. That’s pretty shocking, given that compensation is typically one of a company’s largest expenses, and a lot of time and thought go into designing sales incentive programs.
Inspiring reps with the bigger rewards picture
According to the research, sales managers have been increasing the emphasis on total rewards vs. short term incentives, yet most sales reps (55%) are still focused mainly on short term rewards like commissions. By contrast, only 10% of sales managers want reps to focus on short term incentives, while 65% want them to focus on total comp. Total comp is a more accurate reflection of the company’s investment in the sales rep, as it includes other reward categories such as salaries, health benefits, retirement plans, long term incentives, company cars, non-cash awards, and so forth.
However, the impact of this total investment is diminished if it is not clearly communicated, and its effectiveness is reduced if not managed holistically. What’s more, the majority of sales managers say that the focus on total comp is likely to increase over the next three years, so the importance of communicating its value will only increase. What is causing these gaps and what can be done?
Fortunately, the survey results also point to ready opportunities to improve effectiveness of communicating compensation to sales teams, so that your compensation spend can have the maximum effect, motivating reps and driving performance, rather than being money down the drain.
Ensuring compensation effectiveness
The survey uncovered the factors that firms think are most important in enabling them to communicate the value of total rewards to the field. It also looked at which of these factors companies say they are not handling effectively. Companies clearly felt that overall they did not have the factors in place necessary to support the communication of total rewards. In fact the area where they felt they were most effective, giving salespeople access to data, still was seen as effective at only 53% of companies. Three factors stood out as being considered important, but not being handled well. These represent the key opportunities for improvement, and include:
- Having adequate technology systems for communicating total compensation (84% believe it’s important, but only 26% feel their systems are effective)
- Having all compensation data integrated in one place (84% believe it’s important, 21% feel they are effective)
- Ability to produce total compensation statements for sales people (74% believe it’s important, 26% believe they are effective at it)
Factors affecting effectiveness in communicating value of total compensation
These three key factors go hand-in-hand. In order to produce total compensation statements, you first need to have all compensation data in one platform, to make it possible to do reporting and analysis. To manage that data, and the processes that produce it, you need to have the right technology systems.
The good news, then, is that you can effectively communicate total rewards to your sales force, so that they can see the big picture and appreciate your investment in them, if you have the right technology in place. A total rewards platform that integrates sales incentives with all other forms of compensation and rewards is the key to managing and communicating total compensation, motivating and aligning your sales force, and getting your money’s worth from your compensation spend.
Download the Sales Management Association research report, Sales Organizations’ Total Compensation Practices.