Imagine that you have been tasked with helping a company design a sales compensation plan that is aligned with their mission and big-picture goals. Unfortunately, you find that despite lackluster growth for the company, over 80% of reps are achieving their target incentives, most well above their cash compensation targets.
The company announces to the sales team that for the upcoming year the threshold for accelerators will be raised while commission rates will be reduced to account for the higher performance levels of the sales team. As a result, your sales team feels that they are being punished rather than rewarded for achieving their goals. Some threaten to quit, some actually do quit, and you have a people management crisis on your hands as you’re heading into the new year. To make matters worse, the new year also happens to be when many of your customers are up to renew their contracts, and your sales team ends up neglecting these relationships in favor of fighting for their previous compensation structure.
Here are a few tips that we’ve learned from customers and experts in the field.
Too many sales leaders view sales compensation design as a distraction from their main priorities such as recruiting, coaching, and interfacing with clients. However, sales leaders have insight into important patterns and trends about both customers and reps. Thus, it's critical for them to be involved in designing the best compensation plan for the business.
Not to mention these leaders will be able to provide important feedback on how to effectively communicate plan changes to the team. Imagine announcing changes to your sales rep and stating that the new plan was designed by a well-respected leader of the sales team. This will likely increase buy-in and reassure reps that the new plan is designed to benefit all parties.
Rather than having your company’s CEO, CFO, or HR leader announce sales compensation changes, come up with a plan to announce changes through your sales leaders. Your HR and finance teams can support your sales leaders by doing the following:
Remember that churn is a natural part of a company’s growth and although minimizing churn is important, how the company addresses and handles churn can be the more critical determinant of success.
To avoid a knee-jerk reaction from sales reps, it’s important to celebrate previous successes and highlight the new behaviors the company seeks to incentivize under the new plan. Here's an example.
You’ve been a rockstar at recruiting new customers. This coming year, we’d love to motivate you to upsell our newest features to your existing customers and here’s how you can financially benefit under our new plan.
Give reps a sneak preview into what to expect in the next fiscal year. Will the company be changing its target customer? Will there be new products? What is changing about the new sales collateral?
Hand out a plan document that explains the measures in the plan, the key crediting rules, and the upside that reps can earn for overachieving. These documents are designed to help facilitate the conversation and supplement the plan terms and conditions (the legalese that protects your business from anyone abusing the comp program) and should be distributed regardless of the compensation management system you have in place. This way, reps will be able to follow along the conversations with their managers and ask informed, relevant questions about the new plan.
If you want to see the impact of a comp plan change, you can run and preview any scenario directly on CaptivateIQ to measure its results. Not only does this provide finance and sales leadership with immediate visibility into sales forecasting, it can also help reduce any rep anxiety that comes with plan changes. Showing reps exactly how they are impacted by the new plan (and how they can succeed) significantly reduces anxiety and helps reps visualize the way they will approach their customers and overachieve their quota next month!