Increases in prospect access to information, advances in technology, and a workforce with increasingly diverse motivation are fueling a need for sales strategists to consider more revolutionary changes to sales compensation, including:
- Allowing reps to ‘pick-your-own plan’
- Using predictive analytics to identify and reward top performers at risk of leaving.
There are also many useful ‘evolutionary’ tips in the book, including:
- Paying bonuses with higher frequency
- Having at least 2 levels of accelerators
- Shifting from Excel to ICM/SPM software (though not mentioned in this book, that advice generally applies to sales teams of 100 or more)
- Spending more time communicating comp plan changes
- Building a rep advisory board.
Situation
- At least 75% of companies change their sales incentive compensation plan each year
- When designing comp plans, goals include:
- direct behaviors in alignment with company strategies – focusing on the right products for the right markets at the right price
- attract, motivate, & retain the best sales talent
- fairness
- fiscally responsible
- achievable quotas
- simplicity – no more than three objectives & can fit on one side of a cocktail napkin
- rewards for causality on measurable results generated by each salesperson
- Realizing better results from the sales force can require restructuring the sales team, hiring better talent, providing more effective coaching, and creating a more motivating sales culture
Complications/Opportunities
- Young workers (millennials) place a high value on intrinsic rewards:
- recognition, frequent reassurance, & feedback
- meaningful work
- flexible work hours
- autonomy
- paid time off.
- Older workers place a high value on extrinsic rewards to gain financial security.
- Individual salespeople have an increasingly lower impact since customers have access to far more information through other sources.
- There is a trend toward role specialization: key/strategic account managers, team selling, solution sales, indirect/channel sales, and inside sales teams.
- Without data and reassurance, salespeople assume their pay is going down when plan changes are made.
- Technology is making comp administration simpler.
- One-size-fits-all plans will likely decline in relevance in the future
- In the vast majority of organizations, more than 80 percent of the incentive plan timeline is devoted to the development of the plan, leaving less than 20 percent of the time to roll it out
Resolution
- Use a blend of extrinsic & intrinsic motivators since: (a) they are additive, (b) financial incentives improve the quantity of work without negatively impacting the quality, (c) financial incentives improve work outcomes for longer-term cognitive tasks, and (d) focusing solely on intrinsic incentives will cause you to lose top performers
- Pay bonuses at a higher frequency (ex. Quarterly) since the practice is proven to motivate laggards without detracting from the performance of other groups.
- Ensure rewards are meaningful – components should carry a minimum weight of 15 to 20 percent. This means you should not put everything in your sales incentive plan that you want your salespeople to do. Include just 3.
- Have at least two levels of accelerators
- Do not ignore the importance of good sales managers.
- Root out inequality since reps talk amongst themselves about base salary & incentive pay.
- Provide a choice of plans where salespeople can select from several plan metrics, performance measures, or payout mechanisms based on personal risk-reward. This is known as Pick-Your-Own-Plan (PYOP).
- Leverage Sales Performance Management Software (SPM) for:
- Incentive compensation management
- Territory management
- Objectives and quota management
- Appraisal management
- Sales training management
- Hiring/onboarding management
- Coaching
- Simulate changes in comp plans
- Predict employee resignations based on a variety of factors such as career opportunities, work tasks, leadership, and compensation. Segment the strongest performers, giving them incentives to stay.
- When communicating about comp plans, esp. changes, (a) be transparent about how quotas are set and why differences exist, (b) better frame how to earn incentives, (c) provide “what-if” calculators, (d) don’t make communication too complex or overly legalized, (e) provide tips, stories, and examples, and (f) provide periodic sales comp updates – for example, hold a Q&A town-hall once salespeople receive their first paycheck with incentive compensation.
- Create Rep Advisory Boards of 6 to 12 talented, high-performing, and well-respected salespeople who are considered “key opinion leaders”