By Debbie Depp
The compensation plan is the single most important decision sales management makes. When it doesn't work, nothing else matters. It is the driving force behind the sales organization.
If the plan benefits your company more than your salespeople, then you won't get the performance you want.
If it's too complicated to easily communicate, salespeople won't know where they stand. Moreover, whatever plan you choose must integrate into the company's specific business goals and corporate culture.
When the compensation plan is not linked to corporate strategy, it becomes a misdirected sales approach. The plan at one company unintentionally encouraged geographic limitations.
For example, if the best solution for a customer was offered by a channel partner in someone else's territory, sales reps would choose a less appropriate solution from their own territories rather than working with that channel partner. The reason? The compensation plan rewarded only efforts in sales reps' assigned territories.
The type of plan depends on:
- Life cycle of your company and products
- Your marketing objectives and goals translated into what you want your sales force to accomplish
- Industry and/or relevant labor market pay practices
- The degree of personal selling influence
When company goals are taken into account and clearly communicated, the compensation plan becomes a driving force behind the sales team.
At SAP AG, a German producer of integrated enterprise applications, customer satisfaction ratings are the key measurement driving top sales performance and sales force compensation. In the plan, a sales rep handling only installed base business is compensated entirely on the basis of customer satisfaction.
The management team's bonus is also based on customer satisfaction. Performance is measured by semi-annual customer satisfaction surveys done by a third party. With customer satisfaction linked to executive bonuses, motivation for salespeople at SAP is aligned with corporate strategy. And it works. SAP rarely loses a customer and annual renewal rates are 99 percent.
The Incentive Component In structuring the incentive component of the compensation plan, three basic forms of reward can be considered: commission, bonus, and commission plus bonus. Depending on your company's goals, commissions can be paid by:
- Fixed commission on all sales
- Different rates by product category
- Sales exceeding an assigned goal
- Product gross margin
Bonus incentives are usually paid quarterly as a percent of salary on a variety of sales results. Measurements include gross margin goals, market share, product mix, new accounts, non-sales activities, increased unit sales, and incremental sales from existing accounts. Sometimes a company will decide to pay a bonus on a discretionary basis.
When teamwork between telesales and field sales is ignored, internal conflict becomes the unwanted by-product.
MapInfo, a desktop mapping firm in Troy, NY, avoided this problem by basing its compensation plan on the combined efforts of the corporate account manager, Value-Added Reseller manager, telemarketer and systems engineer.
This peer-based structure ensures honest communication and cooperation. One person can't achieve the quota alone; each must work with the channel partners.
There are numerous ways to measure and communicate performance against a compensation plan. One view of sales activity tells you the status of the pipeline; another view tells you about performance against quota. You may even want to look at standards and variances. The level of complexity you choose is a matter of preference.
The Learning Company (formerly SoftKey) sells consumer software with price points under $49. It sells worldwide to retailers and OEMs using field sales and telesales groups, organized by customer type, revenue amount and territory. With two dozen rack programs and 250 products, there's a lot to measure.
Management keeps the sales team informed through daily "flash" reports, weekly rankings by account and a weekly worldwide teleconference. In terms of quota and compensation, both management and the sales team know exactly where they stand at all times.
Making quota is certainly a cause for celebration but do sales reps keep selling? This is when you need to stretch them the most because the sales they make after they achieve their goals are the most profitable. It's worth spending some time analyzing your fixed costs and overhead. Once your sales cover these costs, your profitability increases quickly.
It is not always clear what compensation plan is right for your sales team. But what is clear is that the most productive plan for any company will reward activities that support the organization's strategic goals. It takes constant communication. Otherwise, you may find this driving force detouring sales efforts in unanticipated directions. |
