Originally published in: The Culpepper Letter
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 software company unintentionally encouraged geographic limitations.
For example, if the best solution for a customer was offered by a VAR in someone else’s territory, sales reps would choose a less appropriate solution from their own territories rather than working with that VAR. The reason? The compensation plan rewarded only efforts in sales reps’ assigned territories.
Although the company’s goal was to provide customers the best solution, the plan did not reinforce that. As a result, the company missed revenue opportunities and fell short of satisfying its customers’ requirements.
In contrast, 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.
SAP’s 225-person worldwide field sales organization helped the company reach $1.1 billion in sales in 1994. In the SAP plan, a sales rep handling only installed base business is compensated entirely on the basis of customer satisfaction.
According to SAP’s Senior VP John Burke, 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.
When teamwork between telesales and field sales is ignored, internal conflict becomes the unwanted by-product.
SQA, Inc. a $10 million developer of automated design testing software, avoided this problem by compensating its telesales reps within defined geography.
SQA also compensates these reps on what the resellers sell into their territory. Field sales receives compensation on all business in its territory and an additional bonus based on how the telesales reps in the territory perform against plan.
Compensation for both groups drives not only their performance against plan, but also ensures teamwork. SQA VP of Sales, Bill Dedrick, believes this plan is a key factor in capturing a 65 percent share of the Windows automated test market.
Another example of using a shared compensation model is at MapInfo, a $30 million desktop mapping firm in Troy, NY. MapInfo’s compensation plan is based on the combined efforts of the corporate account manager, VAR manager, telemarketer and systems engineer.
According to Matthew Szulik, Senior VP of Worldwide Sales and Services, this peer-based structure ensures honest communication and cooperation. One person can’t achieve the quota alone; each must work with the channel partners.
Because the team has a shared objective, it is in everyone’s best interest to cooperate in the sales process. Changing to this type of compensation model has significantly reduced the conflict with MapInfo’s 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.
Softkey International has an interesting challenge when it comes to measuring complexity. The company 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.
David Patrick, Softkey’s EVP of Sales, makes sure – daily, weekly and quarterly – that the sales team knows exactly what is expected and what to do to achieve individual and company goals. Patrick uses daily “flash” reports, weekly rankings by account and a weekly worldwide teleconference to discuss issues.
Quotas, as well as compensation, are measured quarterly. At a week-long worldwide sales meeting, Patrick shares previous quarter results and market penetration, reviews successes, and launches new programs and products. In terms of quota and compensation, both he and his sales team know exactly where they stand at all times.
This kind of communication with salespeople is crucial. They must understand how they are being measured and what it will take to reach their goals.
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.