Let me preface this post with this statement: I’ve spent the last 25 years in the incentive compensation industry, so when I say I’ve just about seen it all, trust me, I’ve just about seen it ALL.
Now let me tell you about the time I saw 200 people get commission checks off ONE deal. And no, that wasn’t a typo. This is an actual situation I experienced firsthand that really got me thinking about the logistics and best-practices on how many people should see a cut of the action when a new deal is signed.
When it comes to closing a deal, sometimes lines get blurred when it comes to determining who should and shouldn't receive a piece of the commission pie. Depending on the size of the deal, you should have a practical sense of how many people should be credited on a single deal, but when you start seeing upwards of 50 people…you have to have to start reviewing your plans to make sure your compensation plans are realistic, impactful and efficient.
You’re a salesperson that has been working hard all quarter on a deal. You’ve spent countless hours on the phone and at in-person meetings working to get your deal to close. You were there from the beginning, to when they signed on the dotted line. You know you have a commission check coming, but you’re not exactly sure how much it’s going to be. But to your surprise, when that long-awaited day comes you feel as if your direct deposit is lacking a couple of zeros.
You bring it up to your manager, explaining the importance you played on the acquisition of this account and they hit you with: “No that’s correct. 200 people touched this deal at one point or another so they also had to see their share of the deal.”
And no, I didn’t add an accidental zero, I meant to type 200. TWO HUNDRED. I mean seriously, it really makes you think about how many people should be credited on a single deal. That begs the question: who actually deserves the credit?
As someone in a leadership position, you need to be able to take a close look at shared credits. Xactly Insights data has shown that companies pay a lot of people per deal. In fact, a number of companies paid 30 different individuals after the close of a typical sales deal. If 30 is a benchmarked number, imagine having to do that for 200 employees! How many layers are there between the VP of Sales and those tasked with closing—and should all of those be compensated for contributing to the sale?
So here’s my two cents:
If you think setting salaries for your employees was tricky, try adding a sales commission structure to the mix and see how that goes. And if you’re still relying on manual, home-grown processes, you might as well realize it’s already game over. As an employer, determining the who, what, when, where, and how (much) of commissions is a challenge in itself. Now imagine the employee who had to do that for 200 separate people on one deal!
Here’s some quick advice on crediting when it comes to creating a fair sales compensation plan that drives the behavior you want. You need to involve just the right number of people—no more, no less. You need executive support for incentive compensation across your entire organization and having too many people or metics could mean things could get hazy for you in the future.
So. Who should get credit for each sale? It’s an important question, and in a single seller model, it’s fairly obvious: the rep! However, when more roles are involved in the selling process, it isn’t always so cut and dry. When setting up a crediting policy, keep these tips in mind:
- Credit the right number of individuals: that is, give credit to those who truly had an effect on the achievement of the sale. This is best measured as those who have persuaded the customer to buy.
- Don’t pay for something that is part of someone’s job. Those activities should be covered by base salary.
- Decide how you will segment the market and split territories: named accounts, vertical markets, company size and/or postal codes.
- Check industry databases to ensure there are enough opportunities in the territory.
The above-mentioned best practices and not be executed without a system for allocating/splitting credits from day one. Now, let’s go full circle. Your plans and commission best-practices all come back to the original sales compensation plan and metrics you’ve set for each rep. If you address these commission questions when you initially put your ICM plans in motion, you’ll have a higher chance of smooth-sailing than if you have to fly by the seat of your pants mid-quarter. Consistency is key, and helps you avoid “crazy comp stories” like paying 200 people on one deal.
Want to learn more about compensation best practices? Download the full 2019 Sales Compensation Administration Best Practices Survey.