Nowadays, sales compensation plan design is a frequently mentioned subject in annual sales planning meetings. “We’ve got to straighten out our comp!” executives proclaim. According to Alexander Group’s 2012 Global Sales Compensation Practices Survey, 46% of participating companies planned to change their sales comp programs in FY2013 despite the fact that 68% of them had already done so last year.
Unfortunately, frequent mention does not necessarily lead to effective discussion. Compensation design is complicated. Its technical nature (especially mathematical formulae embedded in pay curves) often prevents otherwise articulate sales leaders from bringing it to planning meetings. Nobody wants to turn a strategic planning session into an algebra lecture. As a result, corporate America often employs a top-down approach to sales comp re-design: VPs of Sales bark the command; sales operations takes the order. The actual design work, however, is either outsourced to external consultants, or pushed as late as possible to the end of the fiscal year when it becomes absolutely necessary.
As sales consultants, we love comp design work – no matter how technical. As advisors to sales executives, we feel that a one-directional design approach to sales comp design misses the point. Comp plans are not the last piece of the sales puzzle. And all compensation topics need not be technical. Some sales comp challenges may be easily addressed by changing coverage models or modifying job specifications. Effective sales force management calls for a meaningful discourse across strategy formulation, market segmentation, coverage modeling, job engineering and comp design functions, and uses the most appropriate levers to get the job done.
What’s missing is the ability to separate comp structure questions from technical comp design tasks. When the former is fully discussed and decided, the latter can be conveniently outsourced or comfortably postponed to the end of the year without the guilt of procrastination.
Needless to say, identifying high-level comp structure topics is no easy undertaking. A good starting point, however, is conducting a sales comp assessment.
A Sales Comp Assessment is not an audit of current comp plans. Instead, it takes a holistic approach to look across sales strategy, coverage models and job design areas in order to answer the key questions to sales compensation program effectiveness:
• Is the sales comp program aligned with the sales strategy?
• Are the right comp principles applied to the right market/product segments?
• Are the comp metrics appropriate for the specific sales roles?
• Is the comp cost above (or below) expectation?
Answering these questions helps turn a tactical design review into a more high-level comp structure discussion. Ultimately, a sales comp assessment will guide you towards identifying potential improvements in anticipation of next year’s sales challenges.
Alexander Group is offering a free webinar, in which AGI veteran Paul Vinogradov and Compensation Design lead Rachel Parrinello will discuss best practices for conducting a sales compensation assessment and how to avoid common pitfalls.
Enjoy watching! And look to our website for more information on Alexander Group’s sales compensation design services.
Originally published by: Ian Zhao