It’s the single biggest expense for most companies with the motivational power to move financial mountains, but many executives squander the opportunity sales incentives present to directly impact the growth of the business.
For senior executives, the impact of the compensation plan on the sales organization is one of the most important drivers in reaching the company’s revenue and profit goals. The compensation plan directly guides the efforts of the sales organization. It trumps leadership messages, sales strategies, sales management, and sales training. The sales organization will usually listen and move where compensation leads, good or bad.
Steve Lensing, vice president, compensation, of Radian; Mark Donnolo, author of What Your CEO Needs to Know About Sales Compensation and managing partner of SalesGlobe, and Michelle Seger, executive director of consulting services at SalesGlobe, explain five clear steps to designing a sales compensation plan that drives the correct behaviors from the sales organization and helps the company achieve profitable growth in this presentation.
- Understand the C-Level Goals℠. Too often sales compensation plans begin with the numbers. What did we pay last year? Rather than start with the plan, sales compensation must start with the sales strategy. While C-level executives should not be involved in plan design meetings, they should be involved in the early stages of the process to help set the priorities.
- Include the correct sales roles. Organizations change, as do sales strategies. As those strategies are modified, sales roles either evolve or fail. When companies grow from year to year, they don’t grow in a straight line. They hold onto some revenue from current customers, they lose some revenue and customers, and they grow in other areas. Analyzing the ebb and flow of revenue and profit can help a company understand how it grows, plan for future growth, align sales roles, and motivate the right results in those roles.
- Understand what sales compensation can and cannot do. One of the ironies of sales compensation is that while it’s a tactical program, it can churn up issues that are actually bigger misalignments of sales effectiveness. Sales executives have to be able to distinguish between issues that are related to sales compensation and those that are indicators of bigger strategic challenges or problems with the sales process.
- Use the Reverse Robin Hood Principle. Too often, upon a close analysis of payment distribution, it becomes clear that your top performers are not earning significantly more than the low performers. Obviously this creates several problems, including retaining those high performers. Make sure your top earners are your top performers, and that you’re not unintentionally over-paying the under-performers.
- Set Objectives and Quotas that tie directly to the strategic goals. Once you have effectively articulated priorities around target customers, core and strategic products, channel mix, sales talent, and financial growth it’s time to tie quotas to these objectives. While there are several well-known quota-setting methods, historic-based being the most popular.
These five points have successfully guided Steve, Mark and Michelle in the design of incentive compensation programs that connect C-level strategic goals to the front line sales organization.
We Rethink Sales…
SalesGlobe is a data-driven, creative problem-solving firm for sales that solves the most challenging problems.