What if Your Comp Plan Isn't as Healthy as You Think?
Last weekend, sorting through old boxes and organizing all of my belongings in preparation for my family’s move, I paused over a box in the attic that included my last Pennsylvania driver’s license, featuring a 1999 photo of me at 23.
At that age, my life revolved around playing baseball, basketball and working out at the gym. I was young, active, and approached life with the wisdom of comedian Steven Wright: “I intend to live forever—so far, so good.” And then one day in March of that year, I found out I had cancer.
Prior to diagnosis, being unhealthy for me meant I had a symptom, like a scratchy throat or back pain. Having cancer forced me to see another kind of sickness: one where you might look and feel fine, but inside something toxic is growing.
In my current work with high-tech companies, I see sales compensation programs in varying degrees of health. And while our firm is often engaged to help alleviate a symptom (slowed growth, declining margins), we see leading companies conducting periodic health checks to proactively identify and address those murky and even dangerous issues that are sometimes lurking just beneath the surface.
Here are six common health issues that we often see in compensation programs. Each of these issues can be detected and addressed early with regular health checks, whether your company is feeling the symptoms or not.
- Unnecessary complexity. Do you have too many metrics or plan elements? Are metrics or payout calculations overly complicated? Are all of the plan’s elements getting sufficient sales force attention? Does the sales force understand and trust the plan?
- Rewarding the territory, not the salesperson. Are your top earners really your top performers? Are payouts sufficiently correlated with achievement? Do territories with different characteristics have an equal opportunity to achieve and earn?
- Not sufficiently motivating. Are your plans and quotas fair? Does substantial effort lead to significant reward? Is your sales force engaged? Do you adequately reward your top performers? Do your plans focus on clear, measurable and controllable metrics?
- Misalignment with objectives. Does your incentive payout align with sales force performance? Are your top performers and earners being rewarded for generating the right sales, to the right customers, the right way? Are there unintended consequences?
- Inefficient or ineffective processes. Are you doing a lot of manual processing? Do you experience calculation or payout errors? Is processing overly time-consuming? Does the sales force trust their payouts or spend time checking your work?
- Poor communication. How well does the sales force understand and trust the plan? How effective are managers at addressing plan questions and concerns? How frequently do you reinforce the plan throughout the year?
For some high-tech companies, the symptoms are so clear and powerful that it’s obvious their sales compensation plans are unhealthy and not performing. But for many others, the challenges may lie just beneath the surface only to be discovered later, perhaps in response to anemic sales performance or high sales force turnover. In other words, after it’s too late.
My advice in either case: Take the time to conduct periodic health checks. Do not believe that a lack of symptoms is synonymous with strong plan performance and sales force satisfaction. While normal aches and pains can signal performance and satisfaction, it can also be an asymptomatic problem lurking beneath the surface.
Intending to design a sales plan that can live forever is one thing. Actually taking the steps to ensure it remains healthy, viable and high-performing is another. Take it from me: What’s lurking under the surface can be fatal for your compensation plan. But if you assess it periodically, and treat it (as required), your plan has an excellent chance of a long and healthy life.
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