Alexander Group recently held its annual Sales Compensation Symposium where over 400 sales comp and business leaders shared their insights and explored the latest trends and best practices. Below are highlights from the presenters.
Today’s post- pandemic world presents new business realities as companies race to find strong talent that drives revenue. Market changes, inflationary pressures, high turnover and sales role proliferation are just a few reasons why the talent race continues. Additionally, firms are cutting back on previously aggressive hiring from early in 2022 and are now focusing on acquiring and retaining the best talent to support their growth objectives.
What’s working? Companies are figuring out the right balance of in-person, remote and hybrid work models that provide the flexibility that employees desire, reinforce the culture of the organization, drive collaboration and meet the needs of customers. As remote and hybrid models take root, the systems and processes must be in place to enable employees and realize productivity gains.
Internal and external coaching resources are focused on conversations that help employees at all levels to navigate their career ladder (or lattice) and access available resources. Performance reviews are less punitive in nature, refocusing on performance quality and cultural fit issues. Companies are using coaching, reviews and career mapping to support employees in designing unique work options, conquering the traditional manage-your-own-career mentality.
Ultimately, market changes and the need for talent are forcing companies to re-evaluate their sales compensation plans. Alexander Group’s research shows that 43% of companies are overhauling their sales comp plans, with 85% making changes to their sales comp governance model. Strong, motivated sales talent drives revenue and contributes to business growth. Having a well-crafted sales comp plan has never been more critical to attracting talent and achieving strategic goals.
For the last three years, the top areas of focus for sales compensation program leaders have been quota performance, pay guarantees and plan design changes. However, the first step is defining a clear management philosophy that guides the overall sales compensation plan. In addition, gathering company-specific benchmarks will reveal where trouble spots lie. While many tools and tactics are available to “update” the sales comp program, firms should focus on “committing to the pay, not the mechanics” to get the fundamentals right.
The sales comp plan must reflect ongoing market changes and business realities. For instance, paying the seller as close to the point of influence in getting the deal done driving motivation. In addition, an annual review keeps the plan current and competitive. Defining measures that align with strategic priorities and creating an action plan for who and how the program will be deployed drives accountability.
Effective sales comp plans incorporate strong fundamentals that support corporate objectives. Therefore, the first step is to define the compensation management philosophy. Philosophy and a set of well-defined, clearly articulated set of guiding principles should inform every element of the program, from pay levels and mix, to measures, mechanics and crediting rules.
Company-specific data will validate current pay dynamics. Additionally, industry benchmarks will reveal what compensation new hires expect from competitors and what it will take to keep existing employees onboard. Pay transparency is increasing, with many companies publishing pay ranges for what employees can expect to earn.
Alexander Group’s research suggests companies are moving to a higher percent of base salary versus incentive earning opportunity for sellers and away from an aggressive pay mix. In addition, designing quotas continues to be challenging, but the most successful sales compensation plans have quotas in the middle of top-down business goals and bottom-up opportunities. Overall, the sales rep must be able to influence the metrics upon which they are measured. Keeping them motivated means ensuring they can influence how they are being measured and will be rewarded.
Sales comp design includes a well-functioning governance body that consists of the systems and processes to carry out the plan. Benefits include top-line revenue growth, increased plan cost-effectiveness, reduced risk and an improved seller experience. Governance consists of a clear goal, thoughtful design, organizational readiness, management processes, defined payouts and measurements. Governance also ensures that the plan reflects the market strategy, includes detailed job maps and captures appropriate stakeholder input across the organization.
The tech industry is moving toward a consumption-based revenue model, offering new alternatives to customers who want more flexibility and lower cost than subscription-based models. However, this trend presents more complexities in the compensation plan as significant revenue streams have an extended lead time until users increase adoption rates. But consumption revenue products offer opportunities to gain new logos or expand existing customer offerings, using the pricing and usage levers within the model.
Labor challenges continue to plague the tech industry. Companies are willing to pay for top talent. Alexander Group benchmarks suggest overall, investment in sales is up 10% for all sectors but is even higher in tech. Firms must balance the high cost of new hires vs. equitable increases for existing staff and the return on those investments.
As selling motions become more complex and the deals get bigger, all channel partners must add value for customers. Manufacturing and technology sectors are particularly affected and need metrics across all channels, using that data to drive desired sales behavior. Due to the number of dealers, distributors and partners, it is crucial to have advanced tools that capture diverse sales activities across all channels and processes that analyze activity. Channel neutrality is still a goal but often can only be achieved within mature channels with established relationships.
While 60% of CEOs are involved in approving sales comp plans, getting on their calendar is a significant challenge. Tailoring the conversation to the appropriate C-suite executive is critical to ensure their concerns are addressed prior to approval. While CEOs need to know the impact on the bottom line, CFOs will want detailed cost and revenue projections, while CROs and HR will also have specific needs.
“Getting to yes” requires a clearly defined process that includes 1) a clearly articulated philosophy and set of guiding principles, 2) assigned accountability for who will carry out the plan, 3) relevant data that makes the case for change, 4) a plan that focuses on and drives the right strategic priorities, and 5) an impact on the bottom line.
Contact us to learn more about the Sales Compensation Symposium sessions and how Alexander Group can you create a world-class sales compensation program for your organization.