At Xactly, we know sales compensation plays a key role in hiring and retaining talent, driving good behavior and performance—and ultimately revenue growth. We wanted to get a better understanding of how sales compensation is playing out in businesses across the globe, so in partnership with Benchmarkit, we conducted research. The aim: to shed light on the latest sales compensation trends and insights across topics such as on-target-earnings (OTE), variable compensation, quota achievement, quota assignment, and incentive compensation management.
This blog summarizes the key findings you can use to build into your 2024 compensation strategies.
There’s a Gap Between Quota Setting and Attainment
According to the survey findings, a significant gap exists between quotas and achievement. Shockingly, the majority of respondents said that less than 70% of their Account Executives (AEs) achieved quota. Even more alarming is that 91% of companies said they do not expect their AEs to meet or exceed quotas, or are uncertain about it.
What does this mean? There’s a challenge of setting realistic and achievable quotas and the need to improve AE performance. This demonstrates a clear need for an incentive compensation management (ICM) solution.
Ramp time does play a factor in quota setting
You will be shocked at the percentage of companies that don’t believe all of their new AEs will make it through the ramp period (Check out the report to find out!) And typically, we found, companies don’t have ramp periods longer than over six months. Therefore, it’s critical to measure specific time to quota productivity to adjust and develop annual quota plans based upon current trends versus historical bias.
One interesting finding: almost a third of participants said they “do not know” the percentage of those that achieve ramp quota, indicating they might not track this information. If you fall into this bucket, understand that not tracking can materially impact how your quota plans and associated revenue plans are developed.
AE attrition should be a factor in quota plan development
Losing AEs just after they are hired impacts training and recruitment costs—and, eventually, the revenue pipeline. Being able to factor in planned and actual sales attrition rates into quota plan development is critical to ensuring annual quota assignment is enough to cover the target revenue plan.
Size does have something to do with it
The results emphasize the need to align quota setting with industry benchmarks and customer segment growth and profitability. And further underscores the need for differentiated quotas and compensation plans based on target markets. By aligning quota setting with industry benchmarks and customer segment growth, organizations can ensure fair and realistic quotas.
Sales Quota Constructs
Not surprisingly, new and existing customer revenue are the two most common quota components. However, retention rates are making a splash.
Do you include pipeline generation in your sales quotas? Some included pipeline generation as part of the sales quota and/or incentive compensation plan—an interesting idea to ensure that an AE is always working on the pipeline required to meet quota in future periods.
Compensation Plan Design and Execution
The survey reveals the complexity and diversity of compensation structures within organizations. It shows that companies allocate resources based on company size and average contract value, and suggests that larger more complex organizations need more dedicated resources for effective management of compensation plans.
Technology is a key player in sales compensation management
We were happy to see most companies use an ICM platform for calculation purposes, however, less than half of respondents reported using one for plan design. Many instead rely on spreadsheets—but did you know 80% of spreadsheets contain errors?
This finding highlighted two potential challenges: 1) the difficulty in using historical commission plan performance in designing future incentive plans, and 2) the challenge of using information from other systems that can’t be easily integrated. With that being said, there is an opportunity for increased financial operational efficiency by designing, calculating, and managing compensation plan communications in one integrated platform.
How are companies communicating compensation plan changes?
Even though a high percentage of participants reported using an ICM platform, not even half reported using automation to keep their reps informed of plan changes. In fact, many use manual processes, which can introduce delays and errors.
Altogether, the results prove that by investing in better quota setting and benchmarking capabilities and leveraging technology, organizations can optimize their compensation management processes—improving their sales performance and driving revenue growth. To gain a comprehensive understanding of these trends and explore concrete solutions, download the full report.
The survey respondents included 230 companies representing a broad cross-section of company sizes, annual contract values and industries that participated in the research. See the Methodology section in the report to learn more.