How Well is Your Sales Compensation Plan Working?

March 17, 2023
April 4, 2023

How well are your company's compensation plans performing? Even if you set your plans once per year, business conditions inevitably change — market shifts, customer loss, leadership changes, competitor actions, new products/services, and more. 

That's why it's best practice to assess that the plan you've put together will positively impact your team's performance and results. This downloadable checklist details the essential questions and tips needed to evaluate compensation plan effectiveness. Keep reading to understand how companies can successfully gauge success and address needed changes. 

Should you adjust compensation plans to address market dynamics? 

Is your comp plan fair, effective, and competitive? If so, your plan is doing what it was designed to do. But if you're having doubts, taking another look is good practice.  

According to the State of Sales Compensation Report, nearly two-thirds of sales managers (60%) adjust compensation plans to reflect the latest economic and industry trends. But making changes requires striking a balance between motivating sales teams and operational efficiency. 

Sales teams need to be incentivized to find and close deals, even when market conditions are less than optimal. But because sales compensation is often one of the largest GTM (go-to-market) investments, managers may also need to make policy changes to protect the business. These changes include hold and release commission payments and commission clawback approaches, which withhold payouts when deals fall through or customers don't pay. 

When managers make adjustments, it's also wise to consider the best way to motivate reps, especially when market conditions are less favorable. For example, some sales compensation plans offer reps the opportunity to boost upside with a more variable pay structure, which could be a win-win in an environment where leaders need to spend more efficiently.   

What should you consider when updating comp plans?

It's crucial to tailor commissions to drive the desired results — from considering variable compensation to modeling how modifications will impact the sales team.

For example, the State of Sales Compensation Report shows that 56% of reps say they have variable compensation plans at their organizations. Customized compensation plans can effectively reward reps for helping companies achieve specific goals, which is especially important when selling in a challenging market or pursuing resells and upsells. 

Another approach is to offer a spiff, which 30% of sales managers do once a quarter, as evidenced in the report. Offering a spiff can help keep teams focused and targeted on accomplishing one specific goal. 

Key questions to consider:

  • What type of compensation structure makes sense for every type of sales team? 
  • How could these changes — probable risks and rewards — impact the team?
  • How do you structure your compensation strategy to drive the behaviors you want? 
  • Do you have the right compensation management tools in place to easily build and change plans?

Answering these questions using our checklist can help you ensure that your compensation plans deliver results and provide value for employees and employers alike.

How should you roll out updated plans to your sales team?

Be transparent and provide clear, detailed information (data or benchmarks) about what changes have been made, for whom, and why. A solid communications plan will eliminate any areas of confusion or conflict. 

Here are a few tips for successfully rolling out an updated compensation plan:

  • Explain the purpose of the update and whom it will affect.
  •  Give an overview of any changes from the previous plan and details on benchmarks or data supporting the new model.
  • Provide comprehensive documentation regarding any adjustments or alterations made.
  • Give everyone ample time to understand the details of the new plan before rolling out any changes.
  • Be open to feedback from employees on their thoughts on the proposed updates and address lingering questions to build trust between managers and sellers.

Following this process will help ensure understanding and clarity about expectations for performance and rewards. Once rolled out, closely monitor progress with regular employee check-ins based on the performance metrics outlined in your comp plan so you can ensure everyone is aligned, motivated, and successful. 

Schedule a custom demo with our team to learn how CaptivateIQ enables your business to build any sales commission plan and easily accommodate the inevitable adjustments.

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