How is Data Reshaping the way we Compensate and Motivate Sales Reps?
Doug J. Chung’s recent article in the Harvard Business Review, “How to Really Motivate Salespeople,” examines and explains multiple significant compensation studies of the last two decades, and how those theories can be implemented in any sales organization. Chung also describes his own experiences in the field, and details his confidence in the move towards using data as a blueprint for designing and implementing optimum sales plans.
Let Data be Your Guide
At Xactly, we believe that analyzing empirical compensation data is the future. The ability to view not only a single company’s data, but also an aggregated and anonymized set of empirical data across industries is changing the way companies compensate. According to Chung, “The big difference between earlier research on sales compensation and the research that’s come out in the past decade is that the latter is not based just on theories.”
Last year, Xactly released Insights , a tool that uses nine years of empirical data to provide businesses with the incredible ability to understand key components of incentive compensation plans and make impactful differences in their business. Xactly Insights allows leasers to interact with this data, from the average spend per employee to the average quota attainment for your peer group. This visibility helps you to build smarter plans, outpace your competition, and use compensation as a strategic lever to move your business forward.
Other Key Motivation Necessities from The Harvard Business Review
A Goldilocks Sales plan: Making sure you have not too many and not too few, but just the right number of plan components will keep reps focused on the specific goals you’d like them to achieve. It will also keep them motivated throughout the year. Chung advocates “for a pay system with multiple components—one that’s not overly complicated but has enough elements (such as quarterly performance bonuses and overachievement bonuses) to keep high performers, low performers, and average performers motivated and engaged throughout the year.”
Dear Managers, Stop Capping Commissions: It’s common practice to put a ceiling on the amount of money that a rep can take home. Organizations do this to protect themselves from cash-flow issues and unexpected accruals, but Chung has found that, “companies sell more when they eliminate thresholds at which salespeople’s marginal incentives are reduced.” This means that in the long run, it will pay off to remove those caps. You want your top reps to bring in as much business as they possibly can, and when you remove the possibility for them to make more money they are going to lose motivation to bring in more big fish.
A/B Testing isn’t just for Subject Lines: Every company, product, and sales rep is vastly different, which means that a little bit of experimentation is going to be necessary if you hope to achieve the perfect plan for your unique needs. According to Chung’s article, “there are important lessons to be learned from doing controlled experiments on sales reps’ pay, because the behaviors encouraged by changes in incentives can exert a large influence on a firm’s revenue, and because sales force compensation is a large cost that should be managed as efficiently as possible.” Along with a consultant or an experienced research professional, studying sales reps’ pay and behavior can be incredibly enlightening and impactful.
The solutions that our reps are selling are always advancing and developing, and with the pace of technology it’s incredibly important to ensure that the way you’re compensating your reps stays as cutting edge as possible. Access to your own real-time data and the ability to get insights from empirical data will both continue to be a major force in the future of sales compensation.