It has been said that if you can’t measure it you can’t manage it, and this statement has never been truer than in the case of sales performance management and variable compensation. Imagine if you decided to pay your salespeople whatever you wanted, whether they made quota or not.
The reps not making quota but getting overpaid would be happy, but your finance team certainly wouldn’t be. On the flipside, how would your top performers react if they were consistently underpaid and not recognized for their contribution? The idea of “winging it” when it comes to comp plans just doesn’t work.
You need to consider the data available to you in order to motivate your employees, pay a competitive salary, and reward based on performance metrics. With Xactly’s new Insights™ data, the information needed to create the best compensation plans is at your fingertips, and will help you to answer these long standing questions:
1. How should I structure the base vs. variable pay mix?
Pay mix is the mix of base and variable compensation should be largely unique, based on your organization’s demographic and what drives individual employee needs.
Benchmarking lets you compare your compensation mix to other companies in your industry, in your area, or that are of comparable size, enabling you to gain insight into how companies at all performance levels are structuring compensation.
Once you see how you stack up—that is, once you figure out what you’re doing right and what needs to be improved—you can make informed changes to your sales commission strategies that have been verified, by data to improve other businesses’ bottom lines, and therefore position your company for similar boosts.
2. How should I handle quota timing? Should I pay monthly, quarterly, or annually?
Quota timing, as well as short and long measurement periods, can impact results. Take a look at your own data, and then look at the data of best-in-class companies. You’ll find that monthly or year-to-date quotas with good accelerators for deals signed early will give reps plenty of incentive to meet, and even exceed, quotas. In addition, data shows that quick commission payments—those received at the end of the month for work done at the beginning—also control revenue spikes.
3. Am I capping profits when I cap commissions?
Commission caps are typically used to control spending, or when leaders are worried about reps making more than managers do. Capping might seem like a good idea under those circumstances, but our data shows that most reps don’t meet 120 percent or more of their target incentives. In other words, if you cap your plans, you’re telling your reps to put on the brakes at a certain point. And that point could be well below what your reps are capable of reaching.
4. Am I paying too many people per deal?
Lots of companies have no idea how many people they pay per deal or order. When they find out, they’re absolutely astonished. Xactly Insights™ looks at data from companies at all performance levels to determine how many people paid per deal is too many.
5. How many measures should I include in my plan?
There’s no doubt that measures align compensation with company objectives, drive sales performance, and reward outcomes. So it’s tempting to want a gazillion of them. But too many measures contribute to unnecessary plan complexity (more on that in the next question). Leaders of best performing companies give their sales teams the best possible chances of succeeding when they keep their measures focused.
6. How complex should my plan be?
The more complex compensation plans become, the more they enter into a zone of high costs and low value, because they lack benchmarks and ease of use. Our data shows that the more complex compensation plans are, the worse the company results—therefore, less complex sales compensation plans are ideal. Keep in mind, though, that poor results can also reveal that your plan isn’t complex enough. The key lies in the balance.
Find more detailed insights from Xactly’s data in the book, Game the Plan. Visit gametheplan.com to learn more.