More than 90% of companies make changes to their sales compensation program every year.
Therefore, knowing how to effectively communicate the new plan is a necessary and ongoing skill. Effective sales compensation communication presents a number of questions:
- Why is effective communication so critical?
- Who should communicate the sales compensation plan changes?
- When should management communicate the new plan?
- What are sales compensation communication best practices?
- What communication and training are necessary after the initial program rollout?
Why is Effective Communication So Critical?
There are three reasons to invest in effective sales compensation communication.
1. Perception is reality.
The new compensation plan is only as good as the sales representative’s understanding and acceptance of the plan. What happens if the salesforce does not understand the new plan at the start of the fiscal year? Simple: The plan will not have the desired impact. Regardless of the design team’s effort, the new plan will not produce the expected results. In most cases, salespeople need to hear how the new plan works several times before they fully grasp its implications. Expect some sales personnel to not understand their incentive plans until they receive their first incentive check, hopefully accompanied by a clear explanation of the calculation. For quarterly payouts, the receipt of the first incentive check might not occur until well into the fourth month of the fiscal year.
2. The sales compensation plan confirms the company’s vision and strategy.
Rarely does sales management have the full attention of the salesforce. The rollout of the sales compensation plan offers a unique leadership opportunity to not only describe the new plan but also reiterate the vision and strategy of the business. A well-designed plan reinforces this message because the incentive payouts align directly with the accomplishment of the company’s goals. Yet too often, communication efforts focus solely on plan details and overlook the plan’s strategic context. Great sales leaders don’t make this mistake. Instead, they first reiterate the vision of the company, then outline the primary goals and objectives, then describe the sales strategy for the coming year, then outline any specific role changes in the salesforce, then explain how salespeople can contribute to helping the company reach its goals, and then describe how the compensation plan rewards salespeople for their efforts. Granted, it may be a longer message, but connecting these dots for salespeople has impact, helping the salesforce make a stronger connection to the purpose and goals of the business.
3. Effective communication is bidirectional.
Two-way communication is extremely important with the salesforce. The comments and feedback the incumbents share are critical to the ongoing management of the salesforce and the success of the pay plan. And, the “oral learners” need to talk about how the plan works—not just read it—in order to fully understand it. Therefore, communication sessions should encourage questions and dialogue. Such open, honest and direct communication and feedback will ensure a higher degree of understanding and effectiveness. During communication, sales management should pay close attention to sales personnel. How did salespeople respond to the presentation? Were they surprised? What questions did they ask? The different responses provide managers with valuable information on the potential coaching and management challenges they will face in the weeks and months to come.
Who Should Communicate the Sales Compensation Plan Changes?
The sales compensation program belongs to sales management, not sales operations, HR or finance. It is an extension of the chief sales officer’s authority and responsibility. The top sales leader needs to publicly own the pay program; communicating the new plan is a primary means of demostrating salesforce leadership.
To further substantiate this point, consider how the salesforce perceives plan rollout communication when delivered by those outside sales leadership:
- Sales operations: The sales operations team typically provides the enabling solutions to the salesforce, including tools like customer relationship management (CRM), account and territory assignments and compensation administration. Using sales operations to communicate the new program implies that the compensation plan is just another administrative program. This perception reduces the pay plan’s motivational impact.
- Human resources: When HR presents the new plan, some sales personnel might think the plan is not important because it didn’t warrant the sales leader’s time or attention. Furthermore, HR is not in a position to defend or enforce the new pay program since HR does not have accountability or management authority for the salesforce. However, while HR should not communicate the new plan, it should play a role in the design process. Typically, this includes pay-level benchmarking, job leveling, career pathing and sharing company principles. HR can also assist with preparation of the communication material and should be prepared to answer any questions about HR practices or employment-related policies.
- Finance: Finance has an important financial oversight role with the salesforce. Therefore, if finance communicates the new plan, expect some sales personnel to harbor suspicions regarding crediting, quotas and earning opportunities. Similar to HR, the finance team does not have accountability for the sales personnel and their outcomes. As a result, just as with HR, finance can’t defend or enforce the new program. Given that sales compensation is one of the primary levers for driving desired salesforce behavior, sales leaders should embrace the opportunity to win the support of the salesforce to reach company objectives. After all, the salesforce looks to the head of sales for direction and guidance. By confidently communicating the plan and its features, the sales leader can sell the plan to the team.
When Should Management Communicate the New Plan?
Common practice is to present new plan designs within the first two to three weeks of the new fiscal year. Waiting longer will weaken the impact of the new plan and will certainly frustrate the salesforce. At the same time, communicating the plans too early can also present problems. Most salesforces are highly focused on closing deals in the final weeks of the fiscal year. Rolling out a new compensation plan prior to the end of the current year might distract sales personnel from the needed year-end sales focus.
However, if the new plan represents significant change, it is prudent to communicate the themes of these changes in advance of the program year. Sales management can accomplish this through preannouncement communication. This will serve to provide the salesforce with a heads-up on what’s coming, while not distracting salespeople from the sales task at hand. The pre-announcement should include an explanation of when the salesforce can expect to learn the details of the new plan.
What are Sales Compensation Communication Best Practices?
Sales leaders should cover several important topics when communicating a new compensation plan. Salespeople need to understand why the plan changes were made, why the new plan design is in the best interest of the company, and how they can succeed with the new plan. Effective compensation plan communication should cover:
- Company vision: Briefly restate the company’s vision. Restating at the beginning of the plan rollout presentation reinforces this important message and enables the head of sales to reference how the new compensation plan aligns with the company vision. Restating the company vision at the beginning of the plan rollout presentation helps affirm the critical role the salesforce plays in serving that vision.
- Business goals and objectives for the coming year: Even though sales leaders typically present next year’s business goals and objectives at annual sales kick-off meetings, they should repeat these goals and objectives when announcing the new sales compensation plans. This element of the communication agenda should provide a brief summary of business goals and objectives regarding revenue, margins, products, sales channels and customer service. Be clear how the compensation plan is aligned with these goals. Sales leaders who do an effective communication job for the coming year empower their sales personnel to make good judgments on a day-to-day basis.
- Go-to-market strategy: The go-to-market strategy answers three important sales coverage questions: 1) Who is the customer? 2) What is being sold to the customer? 3) Who is responsible for selling? Compensation design changes are usually a result of changes to sales job content driven by changes in the go-to-market strategy. Outline any changes to customer segments and the sales coverage model. This step helps bridge the gap between high-level company goals and revised job accountabilities.
- Sales job changes: Incentive plans reflect job content defined by three elements: the customer, the product/service and the process. If the go-to-market strategy has changed, it
usually results in job role changes. Describe these changes in detail according to these three elements. Focus in particular on areas where salespeople must coordinate efforts with other resources. For example, where do salespeople need to leverage help with presales or post-sales activity? What specialist resources should they leverage during the sales process and when? Note that changes that involve working with other resources typically require more explanation and coaching.
- Compensation program elements: When presenting the sales incentive program elements, describe the pay mix, measures, weightings and formula mechanics for each role. Place emphasis on key changes, but do not gloss over the general plan components. Even for plans only moderately revised, it is appropriate to review the plan design in full. Repeating this information is often helpful to new and existing personnel. For larger sales organizations, the communication process should include breakout sessions by geography or role type in order to cover more detail with the appropriate audience. In such cases, the head of sales should focus on the key themes and objectives, providing the direction, tone and guidance for the breakout sessions. Regional sales leaders can use the breakout sessions to go into greater detail and answer questions. The detailed portion of the presentation should include calculation examples to help illustrate how the plan works and how it compares to previous plans.
- How sales personnel can succeed: This is an opportunity to showcase any new tools and investments to help them improve top-line growth. Describe both internal and external factors that will affect their success. Internal factors may include changes regarding products, services and pricing strategies; new or different resources or tools at their disposal; and relevant training opportunities. External factors include changes to the size of the market opportunity, shifts in competitive dynamics and customer success stories. Internal factors may include changes regarding products, services, pricing strategies, new or different resources or tools at their disposal, and relevant training opportunities. Finally, explain how the sales compensation plan will reward behavior that supports new company goals and objectives. Examples of how preferred sales outcomes will affect plan payouts will help sales personnel see the possible range of their earnings opportunity.
- Next steps: The presentation by the head of sales is just the beginning of the communication process. All sales personnel should also receive a detailed compensation plan document specific to their job role. First-line managers should conduct one-on-one coaching sessions with each salesperson to walk through these plan documents, discuss each individual’s quota and target incentive or commission rate(s), and highlight specific ways that each salesperson can succeed with the new plan.
- The plan design process (optional): Depending on the degree of change, the head of sales may choose to communicate how the sales leadership team developed the new sales compensation plan. This includes describing those involved in the design process and other supporting information such as the number of meetings, the type of analysis and application of external data. It might be helpful to summarize any feedback collected directly from the salesforce and share how the feedback may have shaped the final plan design. Outlining the time, resources and effort that have gone into the plan design often adds credibility to the message and enhances the new program’s chance of success.
Additional Communication Tips
Effective compensation plan communication should include the following actions:
- Be definitive with the delivery. This is not the time to ask salespeople what they think. The design work is completed. Management has approved the plans. While it is perfectly fine to solicit questions on plan features, asking for plan design feedback at this point is ill-advised. Management must communicate the plans with a definitive voice. If not, sales personnel might consider this as an invitation to negotiate changes to the plan. This could effectively undo the hard work and decisions from the design process. State clearly that the plan designs are final and not open for negotiation. Include the exact dates for when the new plan goes into effect.
- Cascade the message. Present and train the management team on the new plan design and the full presentation in advance of the main presentation to the salesforce. Be sure to answer all the field management questions first. It’s important to get buy-in from the first-line managers. They will need to deliver the same messages to their teams and be able to answer with confidence any questions team members ask.
What Communication and Training are Necessary After the Initial Program Rollout?
Sales personnel should know where to turn if they have additional questions after the main presentation. Create a detailed frequently asked questions document in advance, and make it available at the time of rollout. In addition, revisit the topic of new plan changes at the beginning of the next performance period, typically the start of the second quarter. By this time the sales representatives will have received at least one incentive check. Ask first-line managers to share any feedback they have received from the representatives on their incentive checks. Were the statements clear? Did the new plan calculations make sense? Then conduct a separate meeting with the sales management team to discuss the sales representatives’ feedback and address any open issues or misconceptions.
A good sales leader recognizes that communicating the compensation program is a valuable leadership opportunity and a chance to inspire sales talent. Remember, however, that the compensation program is not an appeasement program meant to please or satisfy the salesforce. Ultimately, the compensation program is a company program. With that in mind, present the new plan with confidence and courage, and make it a rewarding experience for all.
Learn more about our Sales Compensation practice.