Removed from the sales effort in the trenches, the CFO is not always in a great position to understand the impact of the sales compensation plan on the behavior of the sales force. Since it is the CFO’s role to help the company to be successful from a business and financial perspective, it follows that it is critical to work with the sales and human resources leadership to create compensation plans that result in the right sales results.
Here are five things the CFO needs to understand about sales commission and incentive plans that work:
- Tie rewards to the right outcomes – while this may sound obvious, we often see this rule broken. If a company’s objectives are not revenue growth, it doesn’t make sense to reward sales reps for revenue achievement at the expense of all other outcomes such as profit or customer satisfaction.
- Keep it simple – the less complicated the plan, the easier it will be for reps to act in a way that earns rewards. The more complicated the plan the more likely that reps will either be confused and frustrated about how their work produces rewards, or they may focus on the area of the plan that they understand which may not in fact be the priority results the company wishes to receive.
- Report regularly – sales people, like most people, want to see immediate feedback that they are doing the right things and succeeding. Consequently, providing results on a regular basis helps motivate the reps and react as quickly as possible when behavior needs to be adjusted in order to produce better results and rewards.
- Pay regularly – many comp plans pay long after the triggering behavior has occurred. Again we all like to see the fruits of our labor as quickly as possible as this provides the incentive to continue performing. While it may be great for cash flow to extend the time between a success event and paying commissions, plans that pay out long after a rep has done “the right things” don’t necessarily provide strong positive reinforcement of the behavior.
- Don’t mess with a good thing – one of the biggest beefs for sales reps are plans that regularly change. While it may make financial sense to change plans regularly to match changing market conditions and company goals, it becomes self defeating if the reps are not properly motivated because they don’t understand a new plan or if they are rewarded less for doing the same things as they did under the old plan. In a worst case this can lead to turnover and loss of top producers who will seek to work for other employers with more favorable sales compensation plans.
To your success!
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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