Sales Comp Plan: Keep it Simple

Compensation Plan fits on a Business CardAlign sales compensation with company strategy. Protect the company’s economic interest and still offer a compelling incentive plan to attract top talent. A lot of otherwise good ideas may be a poor fit for your company in 2015.  What’s the best way to keep creative compensation ideas from becoming an error-prone administrative nightmare?

“Your incentive compensation plan is your organization’s way of communicating top priorities. Plans with a boatload of components don’t communicate much at all.”
–  Xactly

Here are 5 factors to consider to make sure you’ve got the simplest compensation plan that will still get the job done.

1. Be Clear

If you lack the confidence or the will to motivate and hold your sales team accountable, you are likely to over-engineer your company’s sales compensation plan.  A bewildering compensation plan indicates a lack of focus in the sales organization. When leaders communicate priorities and connect them to the compensation structure, it ensures everyone is clear on how to invest their time. Adding more elements to the plan is a poor substitute for effective communication. What the team needs is clarity.

2. Be Realistic

Compensation plans become complex when you embrace impractical goals. Creating a plan “that will cause poor performers to quit” is not leadership nor going to foster a culture of accountability. Similarly, devising product-specific quotas in an attempt to move hard-to-sell products rarely works as planned and you’ll likely get hit by the law of unintended consequences. Setting an aggressive but achievable top line quota is difficult enough.

3. Do No Harm

Some popular compensation plan elements were devised to solve problems very large companies must deal with. Specialists, overlay sales teams and matrix organizations create multiple layers of commission payouts on each sale. If that’s not your situation, you’ve got to ask yourself, “Who benefits from complicated sales compensation plans?” Don’t solve problems you don’t have.

How Much Credit Should We Give? Organizations must decide whether to split credit in a zero-sum environment or duplicate credit, giving full sales credit to multiple eligible sales participants.
ZS Associates

4. Keep it Positive – it’s an INCENTIVE

Are you thinking about thresholds and hold-backs when you should be paving the way for new sales people to gain traction in new markets? Top sales reps do not consider the incentive component to be “extra” pay. They are putting 40-60% of their pay at risk in exchange for the opportunity to earn significantly more based on personal productivity. One important question on the mind of every recruit, “Is this company giving me the best possible chance to be successful?”

0% to 49%3%
50% to 99%6%
> 100%10%

If you find your compensation design focusing on “penalizing” sales people, you may have the wrong hiring profile or much bigger sales culture problem. Before you implement a tiered commission structure, ask yourself these questions:

  • Are sales any easier or less important to make in the first half of the year?
  • Does a new territory launch require more or less incentive to get traction?
  • How much would the territory produce if it were open?
5. Candidate Pipeline

Office politics and good intentions get in the way of accountability. CEOs and Sales VPs say they demand performance. But, because of the imperfect nature of quotas, territory design and the uncertainty of replacement headcount, relatively few sales people are terminated for missing quota. This is especially true if they are otherwise nice people.

It’s much easier to make objective personnel decisions if you have a pipeline of replacement candidates at the ready. There is nothing compassionate about keeping someone in a role that they are not well suited for. It’s far kinder to help them transition into a job they’ll be great at. If you overreached and the territory just will not support the quota, act quickly to fix it. A new sales rep that does not experience success in the first 6 months will be a shell of the confident person you hired.

Put Your Plan to the Test

Imagine you are wrapping up a final interview with a candidate you want to hire. The primary compensation elements should fit easily on the back of a business card. If it takes longer than the post-interview elevator ride from the 4th floor to the lobby to explain it – it is too complicated.


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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