The Dos & Don’ts of Your 2018 Sales Compensation Programs
By Mark Donnolo
December 26, 2017
Sales compensation programs are powerful and can be complicated, especially for the telecom industry. The reason? There has been a move away from being utility providers to providing a range of communications and technology services. Because of this shift, sales leaders in the telecom industry are facing unique challenges-changing sales roles, pay competitiveness and selecting the right performance measures.
Consider our list of three “dos” below and several important “don’ts.”
- Begin your plan with strategy and sales roles. Not your calculators. Just set those to the side for now. With such a large product range, telecom sales leaders are challenged with how to define roles. The sales strategy answers questions about what types of products and services you’re going to focus on, which industries are important, and your sales potential and profitability goals. Answers to these questions have to be clearly understood before you introduce metrics to drive behaviors to those goals, right? Right.
You also have to understand what type of sales talent you need to accomplish these goals. Telecom sales roles have expanded to specialized roles (acquisition, account management, renewal, win-back) and sales support roles (system engineers, customer care). Each of these roles will require a separate sales incentive plan.
- Frame the plan with solid fundamentals. First, determine the target pay (Total Target Compensation – or TTC) for each role, remembering that the market targeted for talent may be different than the market in which the business competes for customers. Telecom companies should consider building a more innovative and competitive package, including strengthening their broader employee value proposition beyond incentive pay in areas such as job content, career path, intangible rewards, and other long-term incentives. Next set the pay mix, which is the proportion of salary and incentive at quota. Pay mix will vary by job type in an organization and is driven by several factors that include sales process characteristics, types of sale, and types of customers. Make sure your plan includes upside potential – incentive pay above TTC — for your top performers. Upside is a critical component to help the organization attract and retain the best talent in its market.
- Link pay and performance. Once you’ve set the foundation, it’s time to link those elements to some real action. A major measurement factor for telecom companies is managing churn, as yours is a continuous flow business. Performance measures should define the focus areas that are most important for each role. Each measure should represent the most significant pieces of the sales strategy that the role can control. A challenge for many organizations is determining which few of many possible measures should be included in the sales compensation plan, which should be part of the performance management program, and which should simply be core expectations of that job.
For each measure, the organization must define the level at which that measure will be tracked for the plan. For example, the organization may define a revenue measure for a sales rep at an individual level or a region level. Each measure will also be measured and paid on a certain timeframe, for example monthly or quarterly. The decisions around measurement levels and timing can have a direct impact on rep behavior. Measure too high and the rep may have little control. Measure too frequently and the cycle may be out of synch with a long sales process.
Mechanics create the connection between performance and pay; they can be divided into three types. A rate-based mechanic (also known as a commission) usually pays a certain percentage of revenue or gross profit, or a certain dollar amount per unit of sale. A quota-based mechanic typically pays a target incentive for reaching a specific quota or goal and may scale its payout above and below that performance level. A link creates a relationship and interdependency between two measures or mechanics.
Even though telecom sales leaders are facing unique challenges, following these three critical steps will ensure your plan withstands the ups and downs of the industry. Yes, sales compensation plans are powerful and complicated, but preparing a solid plan will reap rewards both short and long term.
This article originally appeared in Telecom Reseller.
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