5 Ways to Halt a Haunted Sales Compensation Plan
In shadows, under bridges, and behind doors – this is where monsters can be found in movies. But those are not the creatures we should fear; it’s the management of risk we should be really worried about. Managing the monster of risk in your sales comp plan is no task for the faint of heart.
In the past, managing risk was a topic that didn’t garner much attention in the sales comp world, and these ghouls were left to torment plans as they pleased. Now there is no need to fear, for authorities in the field are no longer spooked by the topic, and have worked to shed light on the sales comp labyrinth. Managing risk is no longer just an abstract idea; it is a mindset that you must apply to the entire sales compensation system. So, how can you avoid leaving your company vulnerable to unforeseen fiends like high costs, turnover, and nightmarish uncertainty?
1.) Don’t be frozen by fear: analyze sales crediting
Like any good monster movie, studying the problem is the key to solving it. In order to manage risk in your compensation plan, you must examine sales credit rules carefully, and learn all about the beast you have to face. When Xactly evaluated existing sales comp data, we found that as many as 160 commissions were paid out – on one deal! This is maniacal – the cost is excessive, and if the company is still calculating their comp on a manual system, they likely don’t realize what the true, comprehensive cost of the deal is.
Go on the prowl to discover your current crediting status with these questions:
- Does the type of product change how much credit is given?
- Does the type of customer alter the amount of credit given?
- How much credit does each role receive?
- Where did all these zombies come from?
2) Avoid ghastly miscommunication errors: ensure that governance is in place
Governance has a grave reputation in the field, and it may be resisted by your staff. However, if you’re tightening operations, governance needs to be enacted and enforced. To implement it properly, you need to have multiple departments coming together and communicating with one another.
Human resources, sales, finance, and legal all need to be invited to the monster mash – and they need to be ready to mingle. One side may claim that they’re paying too much; the other might say they’re not getting paid enough – but with governance and an on-demand compensation solution, these communication issues can be eliminated.
3) Frightful mistakes can be avoided: use a plan effectiveness metrics tool
A tool to look at the analytics of geography, position, business unit, performance distribution, and pay differentiation is imperative if you hope to survive this process. This will give you rich information to discern what is working and what isn’t – an important clue when facing off against a monster like this. It also provides insight into previously obscured financial and behavior risks your company could be facing, so you won’t fall prey to any financial jump scares.
4) Don’t let an abhorrent system possess you: have incentives instead of rewards
How can you spot the difference between an incentive and a reward? In a reward system, you hand a rep money and say “Thank you for working hard.” End of story. In an incentive system, you encourage a desired behavior, and your compensation makes a lasting impact on that behavior. Sales reps will look at the plan and modify how they sell, where they sell, and who they sell to in order to be compensated accordingly.
5) Spot terrifying red flags
Do any of these scenarios sound familiar? Sure your company is making money, but your reps are still coming up short? Is quota attainment lagging? Is there an elevated rate of churn? These may seem like low-level problems, but they are bubbles on the black lagoon, and that means you can expect some big bad swamp monsters up ahead. Signs like these indicate that there are issues lurking beneath the surface, issues that need to be remedied. You need to adjust your sales compensation plan if you want to avoid encountering these monsters. Higher-level problems that you may encounter include unhealthy levels of channel conflict, rising cost of sales, and poor management of turnover – and you don’t want to know what kind of creature lurks around these issues.
To keep your operation flowing smoothly, and put your sales demons to rest, remember that managing risk is a group effort, and it takes communication, teamwork, and engagement with HR, Finance, and Sales to tackle it effectively. Following this survival guide is the surest way to bury these chilling sales comp problems. We can only hope that they… stay dead…
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.