Sales compensation: seven fixes for 2011

Sales leaders are now provisioning their field team for a demanding 2011 sales year.  A critical component of every sales execution model is the sales compensation program.

The 2011 sales horizon presents many challenges:  Sales growth is paramount. Controlling sales expenses is a priority. Product management expects sales support for both core and new products. And sales management is well aware that the labor market for sales personnel is beginning to become more fluid with opportunities opening for the better performing sales talent.

To help meet these challenges, make sure your sales compensation program is in top shape for next year.

Consider these seven fixes to improve the 2011 sales compensation program:

Fix #1:  Ensure Alignment. Using a whiteboard; list the company’s key sales objectives—no more than five. Then, next to that listing, write down all the jobs and their performance measures. Make sure the plan measures fully address the company’s sales objectives.

Fix #2:  Reduce Plan Complexity. Your sales compensation plans probably have too many components and measures. Reduce the number of components/measures to three or fewer. Take out compliance measures; for example, use supervision to address issues such as making timely CRM entries. Eliminate measures they cannot influence, such as corporate measures. And remove wishful thinking measures–measures that sales management cannot accurately measure. Finally, reduce the number of different plans. The number of plans should equal the number of unique sales jobs.

Fix #3:  Obtain Labor Market Data. You need market data to make sound pay decisions. In 2009, sales personnel experienced actual wage deflation of 5%. While the data is not fully available for 2010, many are reporting a rebound in pay levels. They expect this trend to continue in 2011. Importantly, while the average increase in pay will be close to 3% or 4%, it will be revealing to separate those who are offering no increase in pay from those allowing base and incentive pay to increase. When looked at in isolation, those granting pay increases will most likely have an average increase in 2010 of closer to 5%, maybe 6%. This labor market “split” could continue in 2011. Gathering and maintaining accurate market data helps ensure competitive pay levels. If you are not improving pay opportunities in 2011, it’s possible to become less than competitive as compared to the best-in-class sales teams. “Vigilance” is the watch-word for 2011 pay levels. Accurate and timely market data is the only means to evaluate pay levels.

Fix #4:  Isolate Quota Disrupters. Many compensation programs rely on quotas for determining different payout levels. Isolate the following quota disrupters to ensure smooth plan operation. Mega Orders:  Unexpected mega orders can render quotas meaningless. Have a special mega-order clause for limiting the amount of dollars that retire quota requirements. Provide a separate mega-order incentive schedule. New Products: When new product introductions are unpredictable, exclude them from the annual quota. Instead, use a special incentive to reward new product sales. Include these new products in the quotas when their sales production levels are predictable. Long Sales Cycle Selling:  Quota systems don’t do well with long sales cycle selling. Instead, use a contract signing award payout schedule to compensate these types of sales outcomes.

Fix #5:  Regulate Account Changes and Sales Crediting. Mid-year account changes are a necessary practice. Sales crediting practices define when sales results are compensable. Both programs need carefully documented rules for ensuring fairness, transparency and accountability. Account changes should occur for only very specific reasons. Quotas should move with the account when they are re-assigned. Re-classification “from” and “to” house-account status can cause irregular compensation payments. To preclude abuses, add watch-dog oversight by documenting and publishing all account changes to field sales management. Sales crediting practices need similar rule-based practices. Rules regarding split and double crediting should be explicit, removing as much field-based discretion as possible. Test for the “point of persuasion” to ensure that only those influencing the customer share in sales credit allocations.

Fix #6:  Automate for Clarity. Sales compensation programs, particularly for sales forces of more than 50 sales professionals, need powerful automated sales compensation software. Use of desktop software solutions or cumbersome home-grown systems reduce accuracy, limit visibility and make program changes difficult. Commercial-grade EIM (Enterprise Incentive Management) software provides the needed flexibility, reporting and audits necessary to manage expensive incentive programs.

Fix #7:  Communicate Well. Sales personnel will attend any meeting that says:  “Learn About Your Revised Sales Compensation Program.”  Use this excellent opportunity to re-affirm the mission of the sales function and its tactical objectives for 2011. Articulate how each person contributes to the success of the sales function. Demonstrate how the compensation program aligns and rewards their efforts for achieving the company’s objectives. Show and explain all changes. Provide examples of various pay/ performance outcomes. Have sales managers meet individually with each sales representative to explain their earnings opportunities under the new program. Communicate often and communicate well.

Your sales compensation program needs your attention. Use these seven fixes to improve sales outcomes for 2011.

Contact the Alexander Group for more sales compensation fixes for your organization.