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In this article, we’re going to consider what goes into building a plan which connects performance with rewards. We’ll consider how to build, manage and hone sales comp plans, so that sales performance is properly translated into rewards and recognition.
Research: what are the big factors to consider before starting to build a sales compensation plan?
Very often people will say, "Can't we just sit down in a room and hash this out in a couple of hours?". Sure, you could develop a sales comp plan in a couple of hours, but you can never tell whether or not it's going to achieve its goals.
Good sales compensation plans are based on researching what's happened in the past, researching the market to see what's required, and understanding the best practices to see the kinds of things that are being done in a competitive marketplace.
What are the key steps to building out a sales compensation plan?
Following research and the input from the leadership comes the development phase where you take the organizational input and then you go through a design process in order to come up with the right plan for the positions. After that comes the modeling, communication, and implementation.
Who is responsible for ensuring that there is a link between payment and performance?
Those responsible include direct sales managers, HR pros, and senior leadership. When you're looking at the results tracking people's performance, there needs to be a very strong relationship between pay and performance.
If people that are delivering more, are earning more, and people that are delivering less are earning less, you have that link. If there are people that are delivering less but still earning a significant amount of incentive then your plan is out of alignment.
How can managers coach their sales reps to meet the goals in their comp plans?
Managers have a big part to play in ensuring a fair and transparent link between effort and reward. So how can they help junior salespeople meet targets?
If the plans are structured properly sales managers should be spending more and more of their time meeting with their sales people, talking about their account planning, looking at what they're trying to deliver out of these plans, and where the salespeople are relative to expectations. If the sales comp plan sets very clear expectations then sales managers should be meeting those expectations or above. Non-performers, people that are performing below-par, need to either be able to meet the expectations set out in the plan or they need to have a different discussion.
How can sales leaders connect performance reviews with sales compensation?
The whole evaluation and talent management process is different in sales than it is for other roles in an organization. A large part of what you're looking for from sales people is what you measure in your comp plan, and sales people who are earning higher and delivering more that's how they're getting their performance feedback.
It is important, too, for sales managers to deliver ongoing coaching and mentoring. Otherwise you can have sales people all going off in various directions, eating up a lot of resources, and some will be successful and others won't. The best plans are managed well by sales managers.
The sales manager should have a plan that is communicated clearly and concisely. You make targets that are achievable and within the line of sight of the sales people, and you make sure that the rewards not only look at the financial side but also recognition. Millennials, for example, like recognition, so part of your reward strategy needs to be recognition as well as incentive focused.
But what if you offer free products, such as basic levels of software? How do you go about structuring a comp plan which rewards no-revenue leads?
You simply can't afford to pay salespeople an awful lot for products and services that you're not charging the customer. If people are selling low margin products, or promotions that are giving the product away, they shouldn't be earning a lot of incentive off that.
If you’re selling at or above targeted margins, or there’s certain volumes with a threshold before payout, then suddenly people’s attitudes change in terms of how much they use promotions or giveaways.
What are the consequences of not connecting payment with performance?
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