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Sales Compensation Changes: Commit to the Money Not to the Mechanics

What is the best way to tell the sales force you are changing their sales compensation plan?

Sales compensation plans need to change if either of these two variables change: company selling objectives and buyer purchasing preferences. These continually moving forces—product/company ambitions and buyer preferences—cause changes to sales job accountabilities. Whenever these accountabilities change, the sales compensation plan may need to change as well. A sales compensation plan could function for numerous years without revisions or updates. Eventually, however, underlying conditions driven by changes to product strategy or buyer preferences will require a realignment of selling accountabilities and thus the sales compensation plan.

Oops, we just bumped into an often-heard objection: “You can’t change the sales compensation plan, it will upset the sellers.” We have heard this statement before and it’s legitimate. We do not want to distract or upset the sellers. However, the plans need to change. What is the change-management solution to address this dilemma?

Let’s solve this problem by committing to the money not to the mechanics.

Most sales compensation plans have an effective date—the start of the fiscal year; and an expiration date—the last day of the fiscal year. This allows for needed annual changes. However, some companies are reluctant to make changes for fear of upsetting the sales force. This is particularly true of companies that have had few changes to the sales compensation plan in the previous years.

The origins of “fear of change” rest with the history of how sales management introduced the current pay plan. A common mistake is to present the pay plan as a base plus an incentive formula. “Welcome sales force, we are here to describe your new incentive plan for next year. In addition to your base pay, you will earn incentives based on this formula mechanic.” The presentation continues with a table of the incentive formula and several incentive calculation illustrations. This is well and good. However, the next time you need to change the formula to reflect a new selling reality, changing the formula is going to raise questions and, in some cases, suspicions. “Why the change?” “Are you trying to reduce my incentive earnings?”

Seldom do companies wish to reduce sellers’ earnings. Instead, they often seek to redirect sellers’ efforts to new goals: new products, new accounts, profitability and other strategic objectives. Sometimes, buyers shift their purchases. For example, to the e-channel affecting sales crediting practices. These changes will require adjustments to the pay plan.

Here is how to correctly introduce the new sales compensation plan.

“Welcome sellers! We are here to talk about the revised sales compensation plan for next year. Your base pay levels will continue, including the regular annual review. Our budget for sales compensation has increased from last year. You will have increased earning opportunities as a result of this x% increase. (Or…”We are continuing with our sales compensation budget from last year for this year.”) As we do each year, we reexamined our sales priorities to ensure alignment between our strategic objectives and our buyers’ needs. Our plans have been reformulated to reflect these fiscal-year objectives. Let’s take a close look at the new plan design…!”

As you move forward with the new sales objectives, you have assured the sales force “the money is still there!”

Commit to the money not to the mechanics!

Recent AGI Publications

Check out the highlights from our 2019 Sales Compensation Hot Topics Survey Executive Summary. More than 85 companies contributed to questions on sales personnel, digital sales jobs, multi-country practices and much more.

The 2020 Sales Compensation Almanac is now available on Amazon. This seventh edition features nearly 400 pages of the latest research and trends in sales compensation.

 

David

David Cichelli
Sales Compensation Educator, Author, Speaker
Connect with me on LinkedIn!

 

 

©2019 The Alexander Group – All Rights Reserved – Issue No. 201019

 

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