Steve MarleyPrincipal,ZS Associates
Chad AlbrechtPrincipal,ZS Associates
Mike MartinPrincipal,ZS Associates
Justin LaneManager,ZS Associates
Most sales compensation leaders are feeling good about where they are in the 2014 sales incentive plan design process. The management team is finalizing the design, developing the rollout plan and expressing confidence that the plan is aligned with the strategy.
But inevitably, if reps’ incentive pay is based at least in part on attaining their quota, when these plans roll out, the field will not be satisfied until they see their quota.
As technology improves, we get better data and our sales ops processes become more sophisticated. Our sales reps are armed with more information than ever about their territories, which allows us to better set rep-level objectives and track performance.
However, could such abundant data also make reps—especially those hired for their strong personal drive and ability to work independently—feel like they are working under a microscope?
As the plan design season starts to wrap up, it’s not too early to think about how to improve the administration of your new plans. Companies invest a significant amount of money to fund incentive plans, yet most companies are lacking in efficiency and effectiveness when it comes to administering these plans.
Within the last month, I have been asked three different times how a company’s business maturity impacts the pay mix and how we should benchmark to the market at each phase. While it is quite common to get questions on how the incentive plan should be structured based on a company’s "age," it’s unusual to get a question on pay mix—let alone three. Given that, I thought I would provide my point of view on the topic in case others are facing the same question.
This time of year, I find myself working on a lot of incentive projects where the sales force is planning a role, targeting, or alignment change on Jan 1. Especially for the teams which will be new or are expecting a significant role change, the discussion will often include whether to use non-sales metrics in the plan while the Reps come up to speed.
Sales teams respond with great skepticism when I suggest looking at non-sales metrics. "We pay reps for those things already in their base salary," they respond, or "We tried that before and everyone was paid the same."
As a consultant, I often have discussions with companies about how they need to "fix our comp plan."
With Halloween approaching, and costumes top of mind for many parents and kids, I thought I would touch briefly on three things that I often see masquerading as issues with the comp plan.
Capuchin monkeys are starkly averse to inequity, according to a 2003 study. When offered a cucumber slice for doing a task, 95% of monkeys completed it. But when some monkeys were offered a more appealing reward, a grape, the percentage willing to perform the task for a cucumber slice dropped to 60%. And when one group received grapes for doing less or no work, the fraction of monkeys willing to do the task for cucumbers dropped to 20%.
The experiment can teach us something about human behavior—or more importantly human sales behavior: When incentive compensation is unfair (or judged as such), the sales force’s motivation shrivels up.
"What would be some key positive outcomes,” I asked in a client interview during a process optimization project this week, “of creating a new process?” Notable responses included, “To help the sales reps spend less time figuring out if they are getting paid on all of their deals and getting paid correctly."
Pressed further, the compensation administrators spoke of having to reconcile their results with spreadsheets created by individual sales reps.
All companies agree that first-line sales managers play a critical role. They are the sales reps’ strongest connection to the home office and set the precedent for how their team will perform.
First-line managers are responsible for both leading their team and growing sales in their geography or accounts. Companies differ, however, on which of the two responsibilities is the highest priority—and this, in turn, impacts sales compensation design.
When I help companies set quotas for their salespeople, project sponsors—typically sales leaders and compensation designers—sometimes tell me their objective is to have at least 60% of their people hit quota. I believe this comes from a commonly published perspective that states 60 to 70% of your salespeople should hit their quota if quotas are to be motivational.
While the motivational aspect of having 60 to 70% of your salespeople hit their quota is clear, the math behind the statement is not.
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