The new year is quickly approaching, and as sales organizations focus on closing out the year strong, sales operations teams are hard at work evaluating variable compensation plans.
Conducting an in-depth review of the performance of your current compensation program is a great place to start when considering changes for the new year. Your results from this review will illuminate which areas you need to address and which areas should get continued focus from your compensation plans.
Sales Planning is Team and Data Driven
When moving forward with your yearly compensation plan review, it’s important to engage with all stakeholders spanning across your organization. Be sure to involve various levels of stakeholders ranging from plan payees to administrators to senior management. Gathering input from these groups will give analysts a holistic view of performance in 2018.
Another place to look for insights is the trove of data hidden in your sales performance management (SPM) solution. Reviewing this data is an ideal way to evaluate which pay components you should retire and which you should emphasize in 2019.
Focus on Your 2019 Sales Goals for Direction:
Before defining a variable pay program, compensation analysts must identify sales objectives for the new year and reconsider the standing metrics and Key Selling Objectives (KSOs) that are believed to drive them. Some sales goals that your organization could spend time reviewing are:
Simply highlighting this objective is insufficient. A better alternative is to identify and set a specific sales target. By following this approach, your organization has a better understanding of the targeted revenue destination. Consider how your future plan will focus on increasing revenue.
Expanding your market share:
As with increasing revenue, it’s not enough to simply state that your organization has prioritized increasing marketing share. Define a tangible percentage and adjust throughout the selling year if necessary. Consider market share growth in relation to market growth and other external forces.
Winning new accounts:
When establishing growth goals for the customer base, many organizations establish a hunter role focused on new account growth and a farmer role dedicated to growing in-account sales. Consider parsing your revenue growth targets into new versus existing customers.
Commission: Setting Goals and Expectations
Based on your organizational sales objectives, you can now begin work on aligning your sales compensation plans accordingly. The most common compensation model is base salary plus commission. This provides both stability and incentive for sales reps who are seeking a balance between meeting their monthly commitments and having the motivation and upside of variable earning potential. It’s also important that your sales reps are aware of how their commission payouts work. When developing your 2019 sales compensation plans, you should set aside time to review the frequency with which your reps’ commissions are being paid out.
Also consider whether your plans are striking the right balance between motivating sales reps and meeting other objectives. For example, frequently, an organization may have in place a commissions payout program wherein an individual sales rep is paid commission after a new customer has committed to the contract. This method clearly motivates the sales rep through instant gratification but must be balanced against operational realities like cash flow management and fulfillment risk.
Components to Revisit for 2019
Based on your 2018 performance results to date and goals for 2019, it should be clear which motivational tactics have succeeded in boosting your sales performance and which have failed. Consider the following variable compensation strategies for your organization:
Performance Metrics and KSOs
It is not uncommon to see the same dashboard components and tracking metrics used by managers during Quarterly and Weekly Business Reviews with their teams. The Compensation Analyst can provide additional value to sales leadership by periodically testing these metrics against the sales outcomes they are meant to drive - albeit indirectly. Advanced Analytic platforms like Tableau, Salesforce Einstein and Qlik give business users ready access to correlation and predictive analytic tools that can reliably test to see if assumed relationships exist - or perhaps if these plan components are in need of adjustment.
Sales Kickers are generally applied only to elite overachievers. Kickers are typically activated only after an individual sales rep has exceeded an agreed-upon threshold, for example, 115 percent of their quota. This further motivates sales reps to maximize performance in the selling year. However, this method can become a double-edged sword as short-term wins can result in having to pay out very large commission checks on a regular basis and can also undermine margins when reps over-rely on discounting to win deals.
Underperformance Penalties are utilized to motivate a minimum level of performance for sales reps. It’s a method in which you reduce their commission payouts or set earnings thresholds to protect your organization’s best interests. For example, if an individual rep meets only 50–60 percent of their assigned quota, their compensation would be based upon their percentage achieved (50%) multiplied by a decimal (0.5). These should be used only when you believe the financial motivation is the best tool to get reps engaged or to encourage self-selection for wanted attrition.
Clawbacks are commonly used by subscription-based organizations. They’re an organization’s safeguard against high customer turnover over longer contract periods or for product sales made through complex channel setups, where information about the final sale to end customers is slow in coming or reversals are reported long after the initial commission event. For example, if a customer agrees to a yearly subscription, but cancels after one quarter, the sales rep who was part of the deal will be forced to return the commission payout. This strategy will motivate sales reps to focus on building long-term customers who genuinely require your services instead of trying to merely bring in every customer. However, aggressive clawback strategies can split a rep’s focus across both hunting and farming responsibilities. If this is a common occurrence, then other strategies (e.g., commission ramping) might be more effective.
Prepare for Success Sooner
No sales compensation plan is entirely foolproof, and it’s definitely beneficial for your organization to re-evaluate throughout the sales year. This approach will allow you to adjust your sales program if your sales goals are not being met. Be sure your sales compensation software gives you the ability to roll out plan changes quickly and easily. Remember to plan your reviews in advance and work with all key stakeholders involved. This approach ensures you are frequently taking the pulse of your sales organization and whether your behavior-modifying sales programs are effective.
More from our SPM Strategies series
This is the second article in our Sales Performance Management Strategies series, provided by beqom consulting partner Intangent. You can read the first in the series, Preparing for Success in the New Year.