Tell me what you think of sales compensation and I will tell you how your sales are going. Is it a burden and a sales ops administrative “thing” or is it a strategic tool that leads to a better performing sales force and, consequently, to increased revenue?
You probably have guessed the most common answer. Instead of building and nurturing a sales compensation plan that gets better sales results, almost seven in ten sales and finance managers see compensation plans as a failure, according to an Optymyze study on 100 organizations. The research also revealed the six most common sales compensation problems that require urgent diagnosis and that, if not dealt with, will result in lost sales:
To increase revenue, sales compensation plans should be aligned with your strategy and adapt when changes occur. Ask yourself if any of the following symptoms are present in your organization:
- plan designs are simplified or modified because they can’t be implemented
- commission costs are rising faster than revenue
- plans haven’t kept up with changes in strategy for a long time
- there are frequent exceptions to plan rules
In my experience, even when sales compensation plans are aligned to the company’s strategy, people sometimes don’t understand them. “When CEOs talk strategy, 70% of the company doesn’t get it,” according to research published by Forbes. This creates frustrations, high turnover, and scares off top sales talent. Here are some symptoms of misunderstood plans to watch for:
- frequent inquiries about how the plans work
- plan documents are late, lack clarity, are too long, or simply don’t exist
- lack of frequent, clear, concise performance information for each salesperson
- lack of a single, consolidated view of all plan results, including SPIFs, for each salesperson
Errors in results
Plans might be aligned to the strategy and understood by the sales force, but the errors cause confusion and frustrations. According to Gartner, eight percent of all sales compensation expenditures are overpayments. Our own studies show such errors occur when organizations are unable to accurately process results, diagnose, and fix systemic problems. So, here are the symptoms you should keep in mind:
- inquiries or disputes from more than 1% of salespeople in the past year about potential errors
- frequent adjustments or payment corrections
- lack of trust in results, causing salespeople to do shadow accounting and challenge anything they are unsure of
- failure to catch errors early in the process, before salespeople see their results
- attempt to manually fix errors with adjustments to input files or changes to computed payments
Lack of information
Only two in ten companies use investigative techniques to answer questions about “what if” scenarios regarding their business, studies show. In my experience as a sales manager, this lack of perspective can harm both sales strategies and sales reps’ every day work. Here are some of the symptoms that indicate your sales compensation processes are suffering:
- managers have almost no idea about the performance of people and the effectiveness of plans
- too much effort required to turn huge amounts of data into valuable reports
- too many managers demand customized reports, while others keep working with their own personal spreadsheets
- managers make decisions based on gut instinct, not on timely data
- frequent special requests for information cause a flurry of activity
Inability to adapt
This is an obvious and common symptom that paralyzes the ability to change. It is indeed hard to respond to changes in data, plans, reports, and processes as soon as the market demands it, but companies should fight against the inability to adapt. Here are some of the symptoms look for:
- plans have not changed somewhat in six months or not substantially in two years
- desired plan changes are avoided, discouraged, or pushed off into the future
- frequent adjustments or exceptions to “compensate” people because desired plan changes could not be made
- errors occur when plan changes are made
- delays or high costs associated with making plan changes etc.
Most companies can’t handle exceptions and non-routine work such as plan design, modeling, and analysis, an Optymyze study shows.
Process inconsistency increases sales ops and sales compensation costs.
Here are some of the symptoms you should investigate:
- late results or payments at any time in the past year
- inaccurate results that affected more than 1% of the salespeople in the past year
- long hours worked by staff resolving issues and manually maintaining sales compensation plans
- difficulty accommodating variations and exceptions that routinely occur in sales and other data
- no process documentation and no discipline to follow established processes etc.
Sales ops and sales managers are often the first to be blamed for compensation problems — but is this really a constructive attitude that drives positive results? These problems may pass unnoticed for months or even years, before causing aggravation, and they add up to lost sales that could have otherwise been avoided. From experience, I know what a deep positive impact dealing with the above issues can have on sales results.
In conclusion, compensation should be nurtured and taken care of on a regular basis. You cannot deal with everything at once, but every step towards improvement will help your sales force perform better. Get regular sales compensation diagnoses to discover and fix the root causes of these problems. Never treat your sales compensation badly – instead of seeing it as a burden, consider it a long-term investment in people and processes, and it will definitely drive sales and increase profit.
Have you ever experienced such symptoms in your company or department? How is your sales compensation feeling? Please comment or ask questions below.
This article was originally published on LinkedIn Pulse.