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
relpost-thumb-wrapper
Related posts
close relpost-thumb-wrapper
Eliot Burdett
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.
Latest posts by Eliot Burdett (see all)
- 20 Of Our Favorite Books About Sales Management and Sales Leadership – October 20, 2023
- How To Make Progress On Your Sales Goal Without A Sales Leader – September 15, 2021
- Augment Your Recruiting Strategy During “The Great Resignation” – July 26, 2021
Recently I wrapped up a consulting assignment for the VP of one the country’s leading enterprise software companies. During that time, I was around the elite level sales people on his team and I got to thinking about the differences between sales forces that consistently perform at a high level and those that are consistently average. One of the key differences is the language used by top producing sales teams.
When a hiring manager meets what appears to be a perennial top producing sales person, there can be an overwhelming temptation to go into full sales mode to get this person hired – especially if this person is working somewhere else which is almost always the case with top performing sales people (we call these passive candidates as they are not actively job seeking). There tends to be a hesitance to ask the tough assessment questions that would be asked of other less accomplished candidates, for fear of turning the great candidate away.
Many sales managers, particularly new sales managers, have trouble striking the right balance between managing reps and letting them do their jobs. Too often there is micromanagement and not enough of the right kind of management.
Often times employers will approach Peak with a desire to hire sales people with very specific sales experience, who in theory will leverage this experience to produce superior sales. The approach makes a sense in theory and would be a convenient way to identify superior sales people but hiring based on experience seldom works in practice.
Spiffs represent a method of incentivizing certain kinds of sales rep behaviors and outcomes. Also known as a Sales Performance Incentive Fund, the Spiff is a concept dating back to as early as the mid 1800s and used by manufacturers as sort of kickback program to retailers that sell higher volumes of certain product lines. Since then, the concept evolved into very popular sales performance tool within sales teams.
During a coaching call with a CEO yesterday, I was asked for my thoughts on some of the best ways to get sales reps to perform. We discussed the elements of effective sales management from strategy, goal setting, communication, coaching and training. Amongst these tactics, holding reps accountable is arguably the most powerful tool for getting reps to perform.
There aren’t too many instances when a new sales hire produces sales immediately upon joining a new company. I wish this weren’t the case, but with the exception of short sales cycles and call centers, most new sales people need time to learn how to sell a new offering and to start building and converting a pipeline of new business. But results aren’t guaranteed.
Often prospective employers will call us seeking to hire a candidate that has a “solid book of business”, or a list of former and/or current clients in which the candidate has key contacts. As the thinking goes, this will allow the rep to quickly generate considerable sales upon joining the new employer. I like the optimism and I can’t blame any sales manager for trying to get a leg up on the competition in acquiring and developing new accounts….unless the requirement to hire someone with a book of business means putting little or no emphasis on hiring someone with the experience and DNA required to be successful in the new role.