Tips to manage your sales compensation planning more effectively
Jason Loh, Head of Sales, Anaplan
It is an accepted truth that well-incentivised salespeople will strive to reach more customers and strike more deals. As a commission-based profession, building the right compensation packages is a crucial, strategic task for business leaders. Unfortunately, they are frequently the last part of a sales plan to be created. Why is this, when the long-term impact of such plans is known to have significant benefits to staff productivity and business success?
The simplistic way of thinking about sales compensation planning as a linear process needs to be abandoned, as the optimal plan cannot be developed in a vacuum. A strategic planner should think of the context, of the people, of market forces, before developing the compensation packages and be willing to make alterations to meet changes in circumstance, market behaviour and business need.
There are a few simple steps business leaders can follow to improve sales compensation planning:
Be adaptable – at many companies, managing the compensation plan is an exercise in fighting fires: so many issues arise each day that simply keeping up with them is a challenge. The best compensation plan managers side-step many of these issues by planning for them from the beginning. They split their time between running the current plan and modelling out future scenarios, using data from other divisions in the company—finance, supply chain, HR, and marketing. Doing this keeps your plan prepared for changes coming down the line.
Increases in headcount, a focus on a new industry, a revised product roadmap, revisions to the marketing strategy: all may necessitate changes to your compensation plan. But, if you wait until after these events have occurred to start figuring out how to modify it, you’ll not only leave your reps confused, you’ll also add unnecessary delays to your company’s sales cycle.
Communicate – if any single activity can ensure success or derail your plan, it’s communication.
In many companies the responsibility of sales compensation planning can be confusing — in some companies it’s HR that manages the compensation plan, in others finance does, or marketing – even IT. Vagueness about responsibility can itself cascade down the chain, leaving reps and leaders unsure what they should be selling, or why, so it is important to define and communicate the roles before the design process begins.
Then, importantly, communication of that plan shouldn’t stop after rollout, nor should it be one-directional. You should communicate in multiple formats. Include a formal presentation, create brochures and documents, post an FAQ on line and recommunicate plan specifics after the first pay-out, when reps are most likely to have questions.
Report – to measure the ongoing effectiveness of the plan, companies need to produce regular reports. Best-in-class companies generate different reports for different stakeholders — salespeople, managers, leadership, administers — each with its own metrics and its own progression. When done right, your compensation strategy should tie together a host of other stakeholders, each requiring information that prompt reporting can provide. These include:
- Finance, which needs your pay-out information to build budgets
- Supply chain, which wants to make sure they can deliver the products you sell
- HR, who manages headcount
- Marketing, who is (ideally) promoting the products your compensation plan incentivises
Reflect and Improve – after you’ve generated the plan, rolled it out, and tweaked it to accommodate feedback from the sales force, you should plan a wrap up session to discuss what went well and what didn’t. Survey the sales force after rolling out the plan, then clarify points of confusion and use feedback to inform your future plan designs (this is a practice that many companies fail to consider, to their peril). It’s important to take input from all stakeholders — including reps, who are often overlooked in the plan design process, but who have valuable insight into how effectively a plan incentivised them to prioritise certain behaviours. Aim for finding the most common problems and assess why they are persistent. After reflecting, use the information to update your foundational programme.
It is crucial to understand these steps as highly interconnected elements of a complicated process and their importance should not be underestimated. Incorporating continuous forecasting into the planning, executing and modifying process will make the planners more agile and paying more attention to how plans are communicated will increase their effectiveness.
Another important fact to bear in mind is that these steps will never be completed per se, as the sales compensation plan requires ongoing care and attention to ensure that it is up-to-date and competitive. These mindful steps, in the long run will help you run a sales compensation scheme that will make your salespeople and your customers happy.