When it comes to designing a sales compensation plan, it helps to have months of input and design meetings. This year, even the most well-prepared companies could be thrown off course in their sales comp planning due to COVID-19 and the rapid changes the virus has brought to businesses around the world.
You’re probably familiar with the expression “The best laid plans of mice and men often go astray.” If it looks as though your sales compensation plan has been led astray by the pandemic, have no fear: these plans can be revised—or even designed from scratch quickly—if need be. We can abridge the process and still retain its power.
Consider these five points when designing (or rapidly revising) a sales comp plan:
- Clearly define the sales strategy and roles, and align your compensation plan. Sales strategy and sales roles provide the foundation for the business’s direction and actions. Sales compensation should align with the sales strategy and motivate the sales organization. Of course this year, depending on what your reps sell, you may want to tweak the plan to pay for bookings rather than billings, for example, or to compensate reps not for selling but for helping. COVID-19 has changed a lot about how business is being conducted. If that needs to be reflected in your sales comp, now is the time.
- Differentiate top performers. Make sure your plan rewards top performers competitively with the industry and significantly differentiates them from the average and low performers. Don’t overpay for low performance; instead, use those funds to invest in attracting and retaining the right talent. That said, you will want to ensure that your average and low performers are not former high performers whose sales have been negatively impacted by COVID-19.
- Keep your plan simple and clear. Pay for three or fewer performance measures that match the strategy, and don’t put any less than 10% of target incentive on any one measure. Use plan mechanics (e.g., commission or quota bonus structures) that are simple and clear with minimal use of modifiers such as hurdles, gates, and links. We have been advising our clients not to lower quotas, but instead to consider pushing them out, say from seasonal to annual, to allow for a recovery.
- Formalize the solution selling process and use sales compensation to support it. Beyond the headlines of solution selling, define what it means to your company and the sales process. Don’t hard-wire sales compensation to solution selling unless the process and skills are well developed, and opportunities exist in all markets. This is an important check-point during the pandemic. Some organizations are rethinking what their solutions actually are, whether they can be sold right now—and if not, what can reps do to drive revenues today and in the future?
- Develop a market opportunity driven quota setting process. Quotas are the lynchpin between pay and performance. A well-designed sales compensation plan can be rendered ineffective with poor quota setting. Make sure your quotas represent the growth opportunities in each market rather than a future projection from a historical performance. At SalesGlobe we often say, “history is history.” Forget about historical sales and instead look at your current sales capacity and market opportunity to set quotas.
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This post was updated October 22, 2020.
Founder and Managing Partner at SalesGlobe
“We help companies solve tough sales challenges to connect their sales strategies to the bottom line.”