A good sales incentive plan rests on a fundamental set of design principles that reward the right behaviours, optimise sales effectiveness, and maximise the return on incentive dollars.
Specifically, a good sales incentive plan design:
• uses performance metrics that are aligned with the company’s overall strategy;
• supports and is consistent with the overall sales force strategy — its job roles, available skills, selling processes, internal culture, etc.;
• is mechanically sound in its design elements; and
• can be administered efficiently
If not well designed however, there may be issues or challenges within each principle which could limit effectiveness, waste new investments or lead to unforeseen consequences that would limit sales growth, especially during these volatile times. According to the 2010 Deloitte’s Strategic Sales Compensation Survey less than half of over 250 participating sales leaders (only 43%) were satisfied or very satisfied with their sales incentive program. The remainder were, somewhat, unhappy with their current plans.
Incentive programs are very important retention strategies; however we have noticed a shift in the configuration of incentive plans in recent times. A number of our clients, in addition to their monetary incentive plans, are now including professional, external one-on-one coaching as an incentive offering to their sales people and leaders. We are seeing a shift from purely monetary reward as the whole incentive offering to an incentive plan that also includes professional development.
So is your sales incentive plan sound?
If sales incentive programs are to be effective, all the factors that affect behaviour must be recognised, including: motivators, values, skills, recognition, an understanding of the company and teams goals, and the ability to measure progress. So, consider this:
1. Do your metrics help drive the company’s strategy?
2. Is your plan a good fit for your sales organisation?
3. Is your plan “mechanically sound”?
4. Can you administer the plan with existing people, processes, data, and technology?
Companies often turn to sales incentive programs to counter failures in meeting targets, poor behaviours or performance issues, unengaged employees, poor morale or attitude, high turnover or loss of talent, or increases in expectations from management. Many companies mistakenly assume that what works for one organisation will work well for all organisations. Companies often attempt to create incentive programs without thinking in detail about how each program feature will best suit their targeted audience.
For example, one software manufacturing company had a sales incentive plan whereby its salespeople could earn twice as much commission selling old solution than if they sold the new software solution, yet the manager wanted to increase sales of the new product. You can see where the sales team were going to give their attention to. Issue: company wants sales growth from new product but sales people are selling something else. Fix: rearrange how the salespeople are incentivized to achieve the behaviour and results you want. It looks so obvious, however companies make these mistakes every day. This is an easy fix if you are selling product in a transactional climate.
However, given these ever changing times and the significant shift from transactional product selling to more complex value added partnership selling, especially when many businesses are looking for more profitable relationships, many sales teams’ incentive plans are not keeping pace. Often based on simplistic transactions and volume, previous sales incentive plans do not account for the many B2B (business to business) sales results which are now based on the efforts of a team not the individual. Selling in complex B2B spaces are often the result of collaborative efforts, so how do you reward results often as the result of many?
The 2010 Deloitte’s Strategic Sales Compensation Survey identified that ‘effectively executing today’s more complex sales approaches requires key sales team members to work together; this could be a key success differentiator for companies in the next five years. But the right compensation plan balance between individual and team-based rewards remains hard to strike.’ Deloitte reported that around two-thirds of respondents are using some form of team-based selling as part of their sales model. But respondents still have concerns about how well their incentive plan is driving team selling. Only 41% feel their plan is driving team behaviour “well” or “very well.”
The “messages” the sales incentive plan design delivers about the company’s strategic priorities should not be contradicted by other sales elements the company has in place — for example, if there are unfocused role definitions within the sales team or little emphasis on attracting or retaining the right sales team members. This is why getting your sales force design right is critical.
The Survey also reported that sales incentive design must be structured so that its metrics, targets, commissions, bonuses, eligibility rules, etc., all interact sensibly and with as little complexity as possible. Poorly set quotas in a fast-moving and unpredictable marketplace can create either overpayment “windfalls” for sales team members – based more on market dynamics than their own efforts – or unrealistically high expectations that can keep morale at a low level. Moreover, the risk is exacerbated by the increasing popularity of building estimates of “potential” into territory or account quotas. While the idea may make good business sense, it is difficult to create estimates with precision, and therefore increases the chances of significant errors in quota levels. The following advice was highlighted as a result of the survey findings:
Take a step back. Evaluate plans against the four principles. Invite practitioners from Sales, Finance, IT, Sales Operations, and HR to look at sales compensation from all perspectives. Think through how investments in sales expansion and support should be productively deployed.
Consider retention. Think about which sales performers the sales team needs to retain — not just the current top performers, but also the “up and comers” who will make a difference to your company in the long-term. Perhaps create longer-term pay structures to keep them motivated.
Something more than Money
Consider offering coaching support to your sales team as part of your incentive plan. This will work especially well for high performers who are looking for something more and those “up and comers” who can really accelerate with the right guidance and support.
As mentioned we are seeing a shift from purely monetary reward as the whole incentive offering to an incentive plan that also includes professional development. So it’s true, even for sales people money doesn’t buy you everything.
Remember everybody lives by selling something.
Author: Sue Barrett, MD of www.barrett.com.au
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