When I was a lad, my parents drilled into me that “If a job is worth doing, it is worth doing well!”. This was usually followed by the corollary “You only get out of something what you are prepared to put into it”. These lessons, although lost on me at the time were internalized and have been a mantra that I have followed my whole life, personally and professionally. Working with sales compensation for over 400 organizations, big and small, for over 25 years has shown me that these life lessons are as pertinent in sales compensation design today as they are making my bed as a 10-year-old a few to many years ago.
I have worked with senior management teams that view sales compensation as a necessary evil each year as opposed to a critical management tool to optimize sales execution. All to often, in the haste at the last minute to implement the sales compensation plan for the new year, executives take a reactive approach and make changes without spending the time or resources to do the job properly. The practice is typically a form of “group think” where leaders get together to look at what they have agreed upon as a direction and sales strategy for the new year and then try to find a consensus on what changes to make to the compensation plans. This rarely works. The result is typically fraught with a lack of clarity in the plan design, its measures, how it aligns with the company business and sales strategy and is generally poorly communicated. The biggest mistake however is the lack of good design process and attention to the time and resources that it takes to accomplish change.
If you don’t believe that sales compensation is an essential item in the annual corporate business plan, consider the following. Based upon information from a recent sales compensation market survey that we performed, the average annual total cost for an individual direct salesperson ranges from $80,000 - $110,000 all in (includes compensation, benefits, space, expenses and allowances). While this is a broad range, it reflects different medium to large sales organizations, targets and plan types. If you manage a sales force of 50 people, this translates into an annual budget of $4,000,000 - $5,500,000 just for the sales group. The larger the sales force, the higher the risk if these costs do not result in the required return on the investment. Further, if you were asking for a capital budget of this magnitude for a project, the analytics to justify it and the time, research and resources applied prior to approving it would be extensive. Every year however, companies approve sales compensation plans within their purview with a fraction of the consideration for an equivalent overhead cost.
As an example of what makes organizations successful in their sales compensation designs, over the past year I have participated with a large company with a national sales force that is implementing “Pay for Performance” for their customer facing sales roles. They have clear goals that are aligned to the project objectives and fully supported by the Leadership Team. Leaders have actively participated not only in the up front project goal setting process, but also in review of draft plan models, approvals of the analytics and final plan design and communications content. They are actively involved in the roll out and delivery of the key strategic messages that reinforce role specific, research based and transparent designs. Multi-disciplinary teams from each sales group participate not only in the design process, but also target setting and review of sales results. One “Ahha” realization for management and the project team in the internal development process has been that this is not really a project, but rather a journey, one that requires on-going commitment to target setting, auditing and review of results. It requires both dedication and commitment to realize the optimal sales results. Following good design process has resulted in significant and promising sales results and sustainable performance with focus on incremental growth and financial improvement. Plan participants are engaged and motivated (some opted not to take vacation and put in additional time and effort to achieve higher incentive earnings). Communication has been transparent about goals, expectations and execution requirements. Managers and supervisors have been trained and are coaching, mentoring and managing to initiate and reinforce desired behavior and results. In short, everyone is driving in the same direction and with the same view and destination. They are seeing the results and benefits of investing appropriately in the process. As a consultant, this is what you want to see for your clients. Why has it worked for this company?
The following are some of the key elements that are powerful and integral to the success of the above and any sales compensation design initiative:
- Research and analysis to base decisions and designs on empirical rather than intuitive rational. It is critical in getting the best designs, achievable targets and good decisions.
- Data …. Accurate, formatted for decision-making, complete and consistent (many organizations fold their tents here as it is hard work to achieve this …... however, the alternative is to choose what we call the “dart board” design process …. I think you get it. (Also, scroll to the top and look at my parent’s corollary!!)
- Adequate resourcing. This can’t be someone’s part time job on top of their regular responsibilities. Conversely, don’t send an army to do what a small team can accomplish expeditiously. It also makes it hard to get consensus.
- To get commitment, you need to have active participation by those affected by the changes, including participants, managers/supervisors, administrators and leaders.
Finally, open, honest communications. This is sorely lacking in many design projects. People understand mistakes, issues with measures, tracking and implementation, but if they find out that management has withheld critical information or they have made a mistake and tried to cover up the problem, they lose all respect for the project, the plans and the management. The above organization is creating a positive, motivating and high performing sales culture that will not only drive sales benefits, but will be difficult for it’s competitors to replicate. It should deliver them sustained competitive advantage for some time. Their people should feel proud. The incentive program rewards them for doing the “right” things with customers, customers get the solution that meets their needs and the company gets the revenue and margins that they require to maintain a robust and profitable employer. They have invested to create a win-win-win for employees, customers and the company.
Research has shown that good design process and plan design and structure that are eagerly adopted by plan participants and supported by management deliver superior results and a positive sales environment. Organizations that take the easy, minimalist approach get what they have invested and live with the risk. To quote my amazing parents …. “If a job is worth doing …. it is worth doing well!”
About the Author:
David Johnston is President of Sales Resource Group Inc. He has a broad, international consulting background and offers experience, active participation and a Sales Resource Group approach to consulting with clients. David has over 25 years experience consulting for organizations in diverse fields, such as broadcast and print media, pharmaceuticals, telecommunications, information technology, retail, manufacturing and financial services.
He has held management positions at Ford Motor Company, The Bank of Nova Scotia, Price Waterhouse and Unisys Corporation. His consulting clients include CIBC, Bell Canada, Toronto Sun, Telus, Rogers Communications, Baxter, MeadWestvaco Corporation, SaskTel, Bell Aliant, Bank of Montreal, MTS, Canadian Broadcasting Corporation, and Shaw Communications. David works with clients in the areas of sales compensation, strategy, sales process optimization, performance management & objective setting and change management. He has managed multi-disciplinary teams in large-scale projects and is a sought-after speaker in the area of organization effectiveness.
In addition to his consulting and management background, David holds Masters Degrees in Clinical Psychology and Business Administration. He teaches for World at Work and is a member of The Canadian Professional Sales Association. David is a member of the Canadian Advanced Technology Alliance Leadership Council.
Disclaimer: The views and opinions expressed in this article are strictly those of the author. CPSA does not endorse any of the companies, products and services mentioned within this article.