Manage your sales compensation program to succeedBy: Ted Grossman Sales Compensation, Sales Compensation Program Management
Congratulations! Your company has thrived. After years of double digit growth, your business has grown – in fact it’s become very large. The company now spans all regions of the globe, serves multiple vertical industries, customers big and small, and offers what has become a dizzying array of products and services. The direct sales team numbers in the thousands. Your channel sales team covers a wide range of partners. Exciting, right? If you are responsible for sales compensation, you may not be feeling as excited. More likely, you are overwhelmed and probably feel like a mouse in an exercise wheel with no end in sight.
Large companies with complex sales organizations are often challenged with job proliferation. More products, customer types and channels require a more diverse range of roles. The situation is often compounded through acquisitions. Business unit or product division structures frequently entail separate, decentralized sales teams, causing further proliferation and even redundancies in role types. Regional and vertical sales leaders may design similar jobs for their local needs without consideration for global consistency. A recent client described having nine different types of Account Manager jobs, simply due to different sales leaders tailoring the role differently.
For sales compensation program managers, unfortunately, the story gets worse. Job proliferation is multiplied by sales compensation plan proliferation. Multiple sales compensation plans often exist for the same roles. De-centrally managed sales teams create plan variations based on their own preferences and opinions based on what they think will drive the desired focus.
Why are job and plan proliferation big issues? The answer is fairly obvious. The more plans there are to design, implement, track, and administer, the more work you create for your internal operations, not to mention the more opportunities there are for calculation mistakes, and more disputes to handle. Most large organizations desperately struggle to effectively scale plan management and administration. The teams managing sales compensation programs often work long hours performing Herculean, manual effort to ensure sales people are paid accurately and on time. It’s often the case where only one or two individuals have distinct knowledge about how to process the crediting and payment calculations, creating the classic single point of failure. This is when you hear sales operations leaders say things like “we better not lose Jane or we won’t be able to pay our reps for a month.” Just as important, when plans proliferate, odds are they don’t adhere to the company philosophy or industry best practices, worse yet; they don’t align with company strategy.
At the Alexander Group we’ve seen this situation play out time and again in large companies. The answer to handling these issues is a comprehensive Sales Compensation Program Management Overhaul – a multi-pronged approach solely focused on addressing the root causes of plan proliferation.
- Platform Job Definition and Sales Role Framework – This effort entails a comprehensive review of all sales roles. Roles are then grouped and categorized based on primary sales responsibility and secondarily on where and how they are deployed. Even the largest salesforces in the world should sufficiently manage the most complex sales organizations with 100 platform jobs or less. Yet we routinely encounter sales organizations with over 300, 400, or even 800 unique sales roles. (Not titles, but roles). Creating and managing a set of Platform Jobs is hard work, but it is the definitive answer for large sales organizations to minimize job proliferation.
- Defined Sales Compensation Principles – A combined team of Sales, Finance and HR develop a clearly defined set of guidelines for the design of sales compensation plans. The best practice approach entails designing these principles down to very specific “goal-posts” for sales compensation design for each platform job. For example, an Account Manager in Enterprise may have specific goal-posts that represent the acceptable ranges for each component of the sales plan (e.g. ranges on pay mix, leverage, clear options for measures and weights, etc.). Clearly defined goal-posts help ensure sales incentives adhere to best practices and are consistently applied across the organization while allowing some flexibility for local needs.
- Sales Compensation Governance – This effort involves defining processes, role responsibilities, and timelines for managing design, implementation, and administration of sales compensation across the company. As obvious as this may sound, some of the most evolved companies have large, undocumented gaps in sales job and sales compensation plan approval and management. Strong governance of these practices is absolutely critical to address and prevent sales job and sales compensation proliferation. This effort also defines how to approve and manage mid-year adjustments to sales compensation plans, quotas and crediting policies. A documented governance structure also reduces legal risks of inappropriate payments, and may be required by law in certain regulated industries.
Managing the sales compensation program at large companies is difficult and daunting to those responsible. The additional work and costs created by unnecessary role and plan proliferation can be absolutely material to the top and bottom line. However, implementing a sales compensation program overhaul provides a pathway to a solution for large companies. Start with designing and implementing platform jobs. Next define the design principles, including “goal posts” at the job level for each plan design component. Finally, design and implement a rigorous governance model.
Does your sales organization suffer from job and sales compensation plan proliferation? Want to learn more? Visit our website, read our eBook on this subject, or schedule an in-house briefing.