The age of traditional one-size-fits-all sales incentive plans is long gone. In today’s market, a successful sales compensation plan must be customized to meet your organization’s unique business goals. The move to custom incentive plans has made it difficult for some businesses to find the right compensation formula.
In a Sales Cygnals podcast, David Johnson, a member of the Canadian Professional Sales Association, and Donya Rose, a sales compensation design leader with 25 years of experience, discuss several incentive plan best practices.
Breaking the Cycle of Bad Compensation Plans
Annually-changing compensation plans often result in poor sales and wide ranges in individual rep performance, but building a successful incentive plan is not a quick fix process. Strong, world-class sales incentive programs should:
1. Create research-based incentive designs
Look at data from your previous incentive plans to see what elements worked and what didn’t. Try to implement successful elements when building out your new plan.
2. Use a multi-disciplinary team
Build your compensation plan with a diverse team to encourage collaboration, see different viewpoints, and bring different ideas to the table.
3. Incorporate the views of different stakeholders
Remember to consider all of your stakeholders, including each member of your sales team. Start by understanding how your sales compensation plan aligns your business goals and how your marketing and service strategies will help achieve those goals to be competitive in local and global economies. Your compensation plan should also work to align sales rep behavior with company goals.
Sales Compensation Management Best Practices
With over 25 years of experience in sales incentive plan design and administration, Rose has found that strong incentive plans require a combination of several best practices, including:
4. Aim for Simplicity
Simplicity is the most frequent request from senior leaders. More specifically, leaders want compensation plans that are easy-to-understand, manage, and align well (not necessarily perfectly) with business top priorities.
5. Clearly Define Roles
According to Rose, “sales comp is a role-based comp.” To fully support your sales team, you first need to communicate your expectations of them. Without clear roles, you are missing the foundation of your incentive plan.
6. Be Aware of Prevalent Practice
You should keep track of the “common” strategies being implemented by competitors in your industry, but don’t blindly follow in their footsteps. Instead, find the best practices for your business rather than implementing all prevalent practices without research.
7. Listen to Your Sales Reps
Successful compensation plans must motivate sales teams. Talk with sales reps to understand their needs, and create a plan that will encourage them to close the right deals for your current business strategy. Ideally, your plan should be a good mix between sales reps’ wants and incentives that will draw them out of their comfort zone.
Sales Compensation Plan Management
It is important to be realistic in your expectations for your sales compensation plan. Remember that your plan is best for focusing sales efforts, motivating sales reps, and rewarding collaboration. You should also:
8. Ensure your plan behaves well
Incentive plans should be flexible and behave well in a variety of different financial outcomes. No matter the financial status, it should pay sales reps fairly and at a reasonable cost to the company.
9. Secure leader support
Successful sales compensation plans need support from sales leaders. Work with team leaders to ensure their opinions are heard and their expertise is utilized within the plan.
10. Learn and internalize best practices
Encourage your team to learn best practices. Rose recommends World at Work courses, The Sales Compensation Handbook (edited by Stockton Colt), as well as her personal website to compare and contrast different compensation plans.
Maintaining Incentive Plans
Much of the focus in creating compensation plans is on implementing the right plan, but this isn’t the final step. You also need to maintain your plan to be successful. To do so:
11. Pair your incentive plan with strong communication materials
Strong communication, along with visual graphics and examples, makes your sales team’s job much easier and clearly demonstrates how the plan functions.
12. Keep reporting in mind
Nobody likes receiving a report that is hard-to-read and text-heavy. Design reports that are both visually compelling and easy-to-read to ensure strong communication along several dimensions.
13. Check in more than once per year
Try to measure how your plan is performing monthly or at least quarterly to ensure you are on the right track to reach your goals.
14. Measure changes creatively
Consider a “big experiment approach” to measure progress, and use every change to your plan as an opportunity to learn–even if the results are not always positive.
15. Tweak plans annually
You know the saying “there’s always room for improvement.” You can always improve your plan, but ensure that any changes are made gradually to avoid distracting and confusing your sales teams. Well-designed sales compensation plans will often withstand the test of time, motivate your sales team, and help you reach your business goals.
So ditch the bad practices and spare yourself the trouble of creating a new compensation plan from scratch every year! Want to prepare for success? View our comprehensive comp planning resource page.