In January, the World Bank announced cautionary good news. The organization’s Global Economic Prospects Report (GEP) predicted growth for developing countries, soft oil prices, a stronger U.S. economy, and the continuation of low interest rates globally.
As experts continue to talk about economic recovery, this positive outlook for the global economy is reflected in corporate earnings which are experiencing an uptick as well.
The Alexander Group’s 2015 Sales Compensation Trends Survey Executive Summary, published in January of 2015, provides insights on how sales compensation strategies are keeping up with the economy. This is the 13th annual report published by the Alexander Group with participants comprising of more than 100 sales departments, representing a wide range of businesses and industries.
Survey respondents reported that revenues are up, that they are set to hire more salespeople, and that current compensation programs are effective. Indications are that sales managers can continue to feel confident about their top performers meeting their goals and achieving their incentive plans, while having to pay even more to these high achievers.
As companies settle into 2015, some may already be enjoying the benefits of a brighter outlook, while others may still be struggling. The report provides a benchmark that Sales Managers, CFOs, and CEOs can use as a gauge.
Revenues, Costs, and Incentives
The Alexander group’s top finding is an anticipated increase in overall revenues. Survey respondents reported that they expect sales revenue growth of 7.5% in 2015. Since revenue projections affect sales targets, Sales Managers should be prepared to alter reps compensation packages accordingly to ensure they align with company objectives and drive the right kind of behavior. According to the report, 2014 should remind sales managers how important it is for market changes to be reflected in new compensation plans.
Last year, respondents projected revenue growth of 7%, yet Sales Managers anticipated a 3% incentive payout at the beginning of the year. By the end of 2014, the payout costs to sales personnel more than doubled to 7%. And while salespeople cannot control the various elements that affect sales success (ie. economic conditions, competition, or a customer’s financial challenges), an effective comp plan, according to Harvard Business School professor Frank Cespedes, will encourage attention to these factors by rewarding accurate forecasting or market intelligence.
Fortunately, companies are taking steps to ensure proper alignment of sellers’ objectives with organizational objectives. 90% of companies reported that they will make changes to their sales compensation plan for 2015, with 10% planning to make ‘significant’ changes to reps compensation plans. Just over 64% of the companies surveyed plan to increase base pay, with a median budget increase at 3%.
Fully two-thirds of companies report that the best performers – those in the 90th percentile – could earn two to three times their target incentive. For employers looking to retool or expand their team with top sellers — the only type of salesperson that should be added to a team – this reality underscores the importance of having a highly competitive and attractive compensation plan.
Is your company projecting numbers like this?
The Alexander Group’s study paints a positive picture for sales departments for the year ahead. The numbers indicate that companies are looking forward to a healthy year, in addition to aligning their goals and objectives in the right way to motivate their sales teams. Companies and sales leadership that are not feeling as confident as these numbers suggest still have time to make adjustments for a healthier 2015.
A recent paper published by the CSO Forum titled, “Send the Right Message with your Compensation Plan” provides perspective on effective compensation strategies. In it, Thomas Blondie, CEO of Spin.com, notes, “if your sales force is not producing the results you need them to achieve, one of the first things that you need to seriously consider as the sales leader for your company is are we to blame?”
Blondie encourages sales leadership to look inward and focus on three key areas to see if they’re sending the wrong messages to their sales force. He suggests focusing on compensation, recognition, and involvement as the best measures.
At the core of compensation strategies for salespeople is commission – and commission caps are bad, argues Smiley (so do we – read why). Putting a cap on commissions sends a clear signal to the salesforce that they shouldn’t push their limits. He also encourages management to show some compassion for salespeople who often suffer under nail-biting sales deadlines for their commissions – by staggering closing dates or updating the commission approach to seasonal sales, employers may generate increased performance out of the sales team, while simultaneously boosting employee retention.
Smiley also believes in the power of non-monetary rewards for salespeople, including increased recognition and involvement. By inviting top performers to participate more in decisions and rewarding them with perks, employers build deeper ties with the sales people that matter most. Not to be forgotten, according to Smiley, is that reality that management can learn from top performers, so including them in discussion about sales strategy and compensation may ultimately benefit the entire team.
Small updates for world-class companies
As sales teams start making their way through 2015, they’re hopeful that the numbers will continue to be on their side, but as the Alexendar study shows, it’s important to create a balance between goals and rewards and adjust, if needed, as the year goes on. Companies that feel they’re not on the best track can still right the ship by asking questions, pulling ideas and insights from top performers, and being open to making adjustments to systems and processes. A rising tide lifts all boats – make sure yours is in the harbour.
- Global Economic Prospects to Improve in 2015, But Divergent Trends Pose Downside Risks, Says WB, World Bank
- The Alexander Group’s 2015 Sales Compensation Trends Survey Executive Summary, David Cachelli, editor.
- “Send the Right Message with your Compensation Plan”, Thomas Blondie, CEO of Spin.com
- Photo Credit: Thomas Hawk via Compfight cc
Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.
He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.
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