Sales Compensation Plans: 6 Common Mistakes to Avoid

Feb 04, 2019
4 min read
Sales compensation plans are the driver behind successful sales organizations. Learn how to improve your plan and 6 compensation planning mistakes to avoid.

Sales compensation is the driver behind successful sales organizations. Along with a strategic sales plan, compensation motivates reps and drives the right sales behaviors to ensure your company has the resources it needs to reach its goals. However, when poorly designed, your sales compensation plan can do more harm than good for the success of your sales team.

To help ensure your sales compensation plan is strategic and effective, it's important to avoid common mistakes that can derail sales performance. Here are six common sales compensation plan mistakes to avoid.

Mistake #1: Recycling the Same Plan Over and Over

One of the most common and most detrimental mistakes in sales compensation is the practice of reusing old plans year after year. Why keep using a broken plan if performance is suffering?

Even if you did have success with your plan, don’t be afraid to make changes to the current compensation plan. It's one thing to keep elements that perform well, but there's always room for improvement. 

Evaluate your compensation plans as a whole, then break it down on a granular level using analytics to find weaknesses and uncover new opportunities. Look for innovative ways to engage and reward your sales team; try non-financial rewards and incorporate new special incentives.

Mistake #2: Rushing the Planning Process

The process of sales compensation planning or revamping a comp plan is often not a speedy process. However, many companies optimistically think otherwise and leave themselves little time to gather previous data, review, and then write the new plan.

This starts with the right sales compensation planning team. You need the right people at the sales compensation table, such as executives from sales, marketing and operations. You may also want to include your compensation analysts, a sales rep or two and perhaps an independent third party consultant. When you pull together the right people with time on their side, you’ll be able to fully vet the plan before implementation.

Mistake #3: Making the Plan too Complicated

To be successful, sales reps must understand what's expected of them and what they can gain from their compensation plan. Sales leaders must ensure clear plan communication, emphasize the benefits, and make sure reps understand the plan fully. The best way to ensure a plan is easy-to-understand and effective is to aim for simplicity.

Make incentives simple and clear. This ensures they drive sales behaviors that align with company goals. Your plan doesn’t need to encompass every potential sale, it only needs to address the most common scenarios with a bit of flexibility for special circumstances.

Mistake #4: Not Taking Advantage of Benchmarking Data

First and foremost, sales compensation plans are meant to motivate reps to reach quota, which means they need to drive the right sales behaviors. However, they must also be competitive enough to attract and retain top sales talent. In reality, nothing hurts performance like a top sales rep leaving for a better pay deal. 

Benchmarking sales pay data helps ensure you are paying reps fairly and competitively in your industry. That way, you attract top talent, keep top reps happy, and motivate middle performers to increase performance. 

    Mistake #5: Ignoring Data & the Backstory

    Historical sales performance data tells the most accurate tale of what has worked and what hasn't. Use data as the main driver behind your sales compensation plans. Using your historical data ensures more accurate sales forecasting, a stronger sales plan, and balanced sales territories.

    Further, hindsight is always 20-20. Yet, with a poorly-design compensation plan, that hindsight is more of a haunting. Pro-active plan modeling helps you build a plan that can adapt for best- and worst-case scenarios and keep on track to reach goals.

    Pro-active and continuous analysis also ensures that you are prepared for potential problems before they happen. As you finalize your sales compensation plans, ask yourself the following questions: 

    • How could this plan fail or be exploited? ?
    • Do my SPIFs and incentives motivate sales reps to perform all quarter, or just at the end? ?
    • Do I assign work in any part of the sales cycle without correlating incentives & commissions?

      Mistake #6: Analyzing Plan Performance Once per Year

      Most companies perform an annual review of their sales compensation plans at the close of Q4 and make adjustments for the upcoming year. However, this makes it difficult to proactively make changes before problems derail performance. Analyzing plans on a minimum quarterly basis helps keep your organization on track for success. 

      Furthermore, it's important to track the right sales performance metrics so you can identify potential issues early. The wrong sales performance measures can have significant unintended consequences. For example, problems occur when too many incentives rest on one part of the customer relationship.

      In the 1980 historic case of Dun & Bradstreet, their sales team earned no commission unless the customer bought a larger subscription. Renewal incentives were not awarded. As a result, sales reps changed customer orders to include product the customer had not ordered. even though customers did not ask for them. By 1989, the company faced millions of dollars in lawsuits.

      So What Should You Do?

      While the exact features of successful sales compensation plans vary by industry, company, and sales role, they all share certain critical elements:

      • Having the right people on your sales comp plan design team
      • Choosing the right sales performance metrics ?
      • Offering reps real-time visibility into their progress ?
      • Giving managers and execs the ability to rapidly generate reports that make sense of past sales results, and run what-if scenarios to predict future success.

      Ultimately, Good sales plans = good sales performance. The stronger your sales compensation plans, the better your company is geared for success.

      Want more tips for sales compensation planning? Download our Complete Guide to Sales Team Compensation

      • Incentive Compensation
      Karrie Lucero
      Karrie Lucero
      Content Marketing Manager

      Karrie Lucero is a Content Marketing Manager at Xactly. She earned marketing and journalism degrees from New Mexico State University and has experience in SEO, social media and inbound marketing.