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Communication issues are the greatest problem in the corporate world today, particularly in sales compensation. Most organizations struggle to communicate clearly with their customers, the people paying for their products. Internally, they do an even worse job of communicating to their salespeople in whom they invest both fixed and incentive compensation to secure, manage and grow their business. Sales compensation is all about communication. It is a critical management tool to ensure that salespeople understand what is expected of them and what they can expect if they deliver. To be successful, the sales compensation plan should tell salespeople what you value and want to pay them for and also where to spend their time and effort.
In focus groups held with sales representatives, the most common reply to how do you feel about your sales compensation plan is “I have no idea.” Why is it that sales organizations have such trouble communicating with their field sales force? Most often, the plans are designed and developed with the financial targets in mind, and the implementation focuses on getting the plan out, not making sure that the plan is well understood. It is most common that the sales compensation plan is late being rolled out to the field (in some cases up to four to six months into the fiscal year). This is a tremendous waste, particularly if you recognize that the objective with the sales incentive plan is to influence the sales behavior and results. A plan delivered part way into the fiscal year basically eliminates its potential in influencing sales results. By the time salespeople have digested it and incorporated it into their sales planning, there is little chance that it will play any significant role in their sales efforts. Plans should be rolled out on time and clearly communicated.
In addition to lateness, another major problem is the failure to link the design and measures of the plan to the sales objectives. When there is poor communication regarding the link between business goals and sales strategies, and the behaviours and activities associated in tactical execution, performance suffers.
Carrots and Sticks
Salespeople are used to change in their sales compensation plans. In fact, the research shows the average sales organization significantly changes its sales compensation plans every three years. In many organizations, there are changes made every year as the sales group tries to find the right combination of “carrots” and “sticks” to achieve their goals. When changes to the sales compensation plan are made, those affected need to understand not only the plan design change, but the rationale behind it. Understanding the reason for the change and the link to sales strategy allows them to commit to execution and achievement with the knowledge of why they are doing it.
Most sales leaders have the best of intentions when they implement the plan for the new fiscal year. They are looking for improvement in account management, growth and a focus on solutions selling. All are worthy goals. However, they lack the detail necessary to ensure a focused and well executed sales approach to achieve expected results. This lack of detail in the steps and expectations for how the accounts will be managed and what accounts should be focused on to achieve the growth (including new business criteria), as well as the measures and assessment of the quality of the solution, all leads to the same problem: interpretation.
When salespeople are not explicitly told your expectations for execution, where to focus, and the important metrics, they interpret the situation and they make decisions about what you want. However, they do not do it with malice. We all interpret differently, based upon our past experiences, successes and failures. This individual interpretation results in everyone going off in their own well-meaning direction to deliver what they believe is the “correct” result. Some are successful, but many end up confused and disillusioned. The results of poor communication are significant. Not only does it result in poor performance against quota, but there is also a loss of commitment, lack of a common direction and wasted efforts, and the organizational drain on resources to support these divergent efforts is considerable.
Recognition and Commitment
So, what then is the organization to do? The first and most important factors are recognition and commitment. Communication is an integral part of the sales compensation design and implementation process. It starts with the launch of the project and for best practice organizations it doesn’t end, but is a continuing part of the on-going interaction with the field and their performance management. Recognizing the value in that interaction (both the quantity/frequency and quality of the information) requires a commitment and dedication of resources to make it happen. Some organizations spend many thousands of dollars on consulting and dedicate hundreds of hours of management and administrative time to create good plans and then negate their value to the organization when they send them out by fax or e-mail. What a colossal waste of manpower and resources.
Another critical element to optimizing the effectiveness of your sales compensation plan is being aware of the different constituents in the sales compensation process and their specific information needs.
Keep Everyone in the Loop
Executives must understand the impact of the new design for the sales and broader organization, what the costs will be and the financial implications. Sales managers will want to know what questions to expect and what to answer. Salespeople must know how the plan and any changes will affect the way they sell and what the potential impact will be on their income.
Administrators and IT will ask “How do I administer this? What data do you need and where do I get it from? What are the calculations, how frequently do I pay them and in what format do you want the tracking and reporting done?” All have different needs, all are critical to the process, and all play an important role in supporting sales execution. Everyone needs a common understanding to build the desired teamwork and create a motivational environment, but only if they each have a clear understanding of their expected contribution and required performance.
Finally, most sales forces work remote from the head office, often out of their homes and with limited supervision and they lack the intimate face-to-face contact of those working in headquarters. These people are the second-class sales citizens of the organization whose isolated work environment is exacerbated by the deafening silence from head office. Communication of the sales compensation plan and their on-going performance against targets is crucial to achievement of strong sales performance in the field and a focused sales approach to execution. The sales compensation plan is one facet of the sales performance puzzle that is maximized by good management and strong, effective communication.
About the Author:
David Johnston is president of Sales Resource Group Inc. a consulting and technology company that specializes in the audit, design, administration, reporting and outsourcing of sales compensation.
© David Johnston, 2008. Reproduced with permission.
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