The 12 Step Compensation Plan Design Process
As part of this effort to make planning for the plan design easier, here are a few thoughts on the process (and here are a few other sales plan ideas):
1. Yes, it is time to start. If your fiscal year ends in December, you should have already started thinking about the next round of plan updates, plan tweaking, or a wholesale rebuild of the entire system. When you wait until the end, you end up just running last year’s plan without any insights.
2. You need to start pulling together internal data from your incentive compensation management system, data from your CRM, and finally information from financial teams on profitability and product revenues. You will be going back to this internal data when running models, checking out programs, etc. Know what you need and look at preliminary data sets so that when you reach out again you can just ask for “an update on the file you sent over in July/August.”
3. Determine what third party data sources you will want to tap into. Are you an Xactly Insights customer using empirical data to benchmark your incentive compensation? Can you find a good industry source for revenue trends in your world? Are there analysts covering your industry that have a new report coming soon?
4. What were the goals set at the beginning of the year? Who is hitting the milestones necessary to achieve those goals? Which goals might be a lost cause? Which could use some quick help to achieve?
5. Where do you think the focus will be NEXT year? You probably already have an idea of some of the challenges that will be faced, and getting a feel for the next round NOW will let you go back to #2 to make sure you have the data available to make educated decisions (e.g. maybe margin will be a new measure).
6. Looking back at #4, what worked in the incentive plan to drive sales behavior towards the set goals?
7. The corollary to #6 is, of course, to find out what parts of the incentive plan appear to have completely failed (e.g. SPIFs that were never achieved or simply paid for the same behavior as before the contest).
8. With all of this information – time for the first meeting of the incentive plan design team. You need to have representatives from sales operations, HR, marketing, plus sales management and finance in the room.
9. Oh yeah – add to #8 a sales troublemaker. That is the rep that does well, games the plan, and somehow hits every SPIF through creative selling (and occasional sandbagging). You NEED their input when you start putting together plan mechanics – they can tell you how sales reps will leverage them in the real world.
10. Got the plan? Time to model it. Look at last year’s data, next year’s pipedreams, and every scenario in-between. Make sure that everyone agrees with the results of any given scenario to prevent finger-pointing next year when the reps do the unthinkable – whatever they are paid to do.
11. The best plan is worthless if you don’t have communication thought out. This is not just the necessary workflow for plan approvals but also getting the sales rep actually excited about it. New territories, quotas, and measures have to be sold TO the reps.
12. Once you are done with all of this – keep it going with a quarterly cadence, a midyear comp plan review and other periodic check-ins. Incentive compensation has to be constantly measured and tracked if you are going to get your full ROI.
Designing Sales Compensation Plans
With careful consideration and strategic design, you can use incentive compensation to inspire your teams and empower them to perform above and beyond the competition.