3 Metrics to Restore Confidence in Your Compensation Structure

How to Handle Challenges to the Sales Compensation PlanIn this morning’s e-Staff meeting, your CEO implies the sales compensation plan is over-paying. If there is no rebuttal, an offhand remark becomes an issue. Some executives are naturally inclined to accept anecdotal comments as fact and if your VP of Sales has no data to support, deny or confirm – the fire drill of the day is backpedaling out of the conference room and headed your way.

Once the comp plan has been rolled out, it is common for sales management to let finance handle it from there. That’s a mistake. You’ll want to stay engaged with your finance partner and review pay for performance metrics monthly with a full review at mid-year.

Revenue and sales compensation plans are built on assumptions. Challenging those estimates during the year is smart and should be anticipated. Sales Operations needs to be prepared to back up those challenges with data and updated projections. Armed with the facts, a single anecdotal compensation issue won’t put you on the defensive.

 

3 Questions

  •  What are our actual commission costs?
  • Are the rewards motivating the results we expected?
  • Is the revenue plan attainable?

 

3 Metrics

Compensation plans have a “base” commission rate, with cliffs and accelerators, actual costs vary during the year. Spot-check each month or quarter to ensure you are tracking close to plan. To begin, make sure you have actual sales commission paid vs. actual revenue for the reporting period.

1. Commission Cost per Sale

Commission Costs per Sale

 

 

 

 

 

Total Commission CostsDuring compensation plan design, senior management makes choices to eliminate or tolerate channel and organizational conflict. It’s popular and sometimes wise to double-comp to keep everyone focused on growth. Over time, these overlay payments can really add up. You’ll want to track a basic metric that shows the relationship between quota-credit and actual sales (or revenue) to see how many times a single sale is being counted around the world.

 

2. Performance Distribution

You want a distribution that maps to company performance that show broad contribution and does not depend solely on the big deal. One of the more corrosive performance patterns is when you have the majority of sales reps not achieving quota and only a handful of veterans with solid install base are making money. Yet, the company declares victory and announces they have once again made plan on the quarterly results call.

 

Sales Compensation Metric | Sales Operations

 

 

 

 

 

 

 

3. Performance Ramp

A sales organization that is consistently successful in all market conditions is able to get new hires contributing as quickly as possible.  When you see just a couple of top performers and a revolving door of new people who don’t last long, this is a sign the company won’t be able to scale.

Sales Compensation Metric | Sales Operations

 

 

 

 

 

 

 

3 Principles

  • Fair, attainable quota supported with demand generation
  • Simple design communicates clarity of purpose
  • Reward structure motivates high performance

 

Key areas to watch for in an out-of-control compensation plan are excessive over-lay and double-comp scenarios. Often, you are just seeing an emotional reaction to a single anecdotal case and there is in fact no broad compensation plan issue.  The e-Staff scenario above never spins out of control if everyone knows (a) you have the data and (b) you are watching out for the company’s interest as well as the sales people you need to inspire. Staying on top of sales compensation data builds credibility, political capital and trust.

Trust is what makes a high motivation compensation plan possible.

 

Resources

Enterprise Sales Operations Articles on Compensation

Sales Operations Content Library


 


About Neal Murphy

Neal Murphy is the publisher of Enterprise Sales Operations and former VP of Worldwide Sales & Operations with 20 years experience in enterprise technology.

+Neal Murphy +ESO