25 years of selling, managing sales teams and building high performance sales forces has taught me many lessons, not the least of which is that sales compensation plans have an enormous impact on attracting the right sales people and maximizing their performance. Yet many organizations make key mistakes in the design and management of sales compensation. We often see employers making one or all of these sales compensation design and delivery mistakes, and in turn suffering inferior sales results.
Here are the three reasons compensation plans fail:
1. Too Complicated
Many sales comp plans have multiple rates and bonuses for various types of sales and/or activities. A correctly designed plan links the highest incentive to the activities that are most important to the employer, but if the comp plan is confusing, the reps are likely by default to focus on the activity which they think will generate the highest return on their selling time, which may not be aligned with the company’s goals. Sales reps are also likely to be frustrated by a complicated comp plan because it will not be clear to them that they are set up to succeed. Keeping things simple is the best recipe for aligning rep effort and company goals.
2. Poor Connection to Effort
Almost all comp plans put cash in the rep’s pocket after sales have been secured, but often times the rep doesn’t receive payment until long after the sale has closed. In some cases employers pay reps months or even quarters after the sale has been closed or when customers have paid for products and services. This can be frustrating for sales people who are typically motivated by immediate rewards for behavior. Ideally there is a short time lag between activity and reward, so sales reps are highly motivated to do more of the right things for their employer.
3. Compensation Gets Changed
Many organizations tend to tinker with comp plans regularly and change commission rates and payment schedules in efforts to generate higher output and/or lower overall costs of sale. Reps often don’t understand the rationale behind the changes or, more importantly, groan when they have to wrap their heads around a new compensation plan and how it affects their effort and reward quotient. Furthermore, particularly where there is a longer sales cycle and a new comp plan will negatively affect the commission payout on maturing sales, reps can feel like they are getting short changed by their employer. Compensation changes should be made with both the employer’s business objectives and the rep’s motivation in mind, made as infrequently as possible and communicated clearly so the reps understand why it is good for both them and their employer.
Leading sales organizations avoid these sales compensation mistakes and instead make sure that comp plans meet the three cardinal rules for comp plans: tied to the right goals, simple for reps to comprehend and resulting in at or above market total compensation.
To your success!
photo courtesy of freedigitalphotos.net | Idea go
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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