Savvy compensation plan administrators know it is essential to keep an eye on the big picture and constantly evaluate how well an incentive compensation plan is performing against corporate goals. Midyear is an important time to examine plan performance because you’ve generated enough data to indicate how a plan is working, and where or how it might be falling short. There are two things a thorough midyear analysis can do.
The first is to drive more effective tactical plan changes. Mid-course plan changes can be risky, and often, not even necessary. But you won’t really know that unless you have good analysis behind you. If you act on surmise, conjecture, or emotion it’s easy to overreact or move in the wrong direction.
With a comprehensive six-month analysis, it’s possible to make prudent and impactful tactical changes, as opposed to change for change’s sake.
Second, midyear analysis can provide valuable introspection. The six-month mark is when you should start defining your plan for next year, so a comprehensive half-year analysis can put you a step ahead in that process. In addition, you can be more strategic in planning for the future, and you’ll have data points to help you communicate your proposed plan to top management.
It’s important to remember, however, that good analysis takes data – including historical sales information, recent data from the current plan year, and insights from industry benchmarks.
An automated incentive compensation system gives you a major advantage in pulling this information together easily and quickly for use in plan analysis, modeling and testing. Once that data is in place, here are three key areas you should evaluate at the midyear mark to make necessary plan adjustments and drive more effective and strategic decisions:
Are your plans meeting company growth objectives?
Is your incentive compensation plan driving the top- and/or bottom-line growth that management is looking for? Are your reps selling the right mix of products and closing the longer-term deals necessary to drive sustainable growth?
After six months, you should be able to analyze by customer, product and territory to identify the growth levers, where the plans are lagging and where they are excelling. You can then adjust resources and incentives for the next six months, and then bake your findings into next year’s plan.
Have your company goals—or competitor’s tactics—changed?
It’s not unusual for goals or competitive tactics to change as the sales year progresses. These changes don’t always necessitate radical changes to your compensation plans, however. Often you can add an accelerator, such as a SPIF, to drive and test desired new behaviors until you decide whether to incorporate the new goal into a long-term plan.
By looking at past sales data and industry benchmark data, you should be able to assess what kind of SPIFs work best for which sales reps. With the right compensation management system, you can test accelerator choices using real data to see the potential financial and performance impact they’ll have on the field.
Are your plans too complex?
Do your sales reps “get” their plans, or are they misinterpreting what you want them to do? Are you constantly explaining plan ins and outs and handling compensation disputes? Six months into the year, you’ll have the data you need not just to answer these questions definitively, but also to tweak the plan accordingly making it easier to understand and thus more effective. Ideally, a plan should have three to five core measures – no more.
These are just a few of the numerous data points that a midyear analysis can tell you. Other key factors to review include seeing if you are paying out more in incentive compensation than you anticipated or seeing if your sales rep churn rate is in line with your industry or expectations.
Delving into all these factors at midyear and modifying where needed can be the difference between ending the year ahead, or behind forecast.