Today's blog post is by Christopher Cabrera, CEO of Xactly Corporation, the industry leader in sales compensation automation.
According to a recent Deloitte survey about sales compensation, sales leaders are facing a fundamental paradox. Of the 300 sales leaders Deloitte surveyed worldwide in 2013, only half said they were happy with their sales productivity. (The six-year average satisfaction level is even lower: 47.5 percent.) But when asked if they believe their compensation programs effectively drive desired sales behaviors, only one-third of sales leaders surveyed said they did not.
That raises a question. As Deloitte asks, “Why do leaders generally believe that their compensation rewards the right behaviors, yet they aren’t content with their compensation programs or their sales forces’ results? There’s a missing link in the belief about what compensation plans can accomplish.”
Well then, what can comp plans accomplish? Deloitte found that sales leaders tend to change their comp plans to address lackluster productivity and performance, thinking the plan itself is the problem instead of looking for the underlying cause.
At the risk of stating the obvious, well-crafted compensation plans can and do drive desired sales behaviors. Poorly crafted ones don’t. The problem is, it’s hard for most companies to know which kind they have until the end of each sales period, when it’s too late to make corrections.
Here are four tips to help you get better results from your sales comp plan.
1) Give them time to work. It only makes sense to change a plan that isn’t working — who wants to repeat mistakes? But to get the complete picture, make sure you have complete data. Use the analytics in your incentive compensation tools to determine if your comp strategy is effective. These reports will pinpoint which incentives work and which don’t.
Some things to consider: Are your territories balanced, or do some reps have more opportunity than others? That could affect turnover. Are some teams consistently underperforming? That could be a sign of a leadership problem. Have formerly high performers slipped to just so-so? They may need more incentives. A non-monetary incentive might help, especially if it’s personalized for the recipient. A new SPIFF could re-energize a complacent team.
2) Build the plan with a broad team. Gather your compensation analysts plus representatives from sales, marketing, and operations, so you can vet your comp plan upfront. By all means, include a sales rep or two — they’re the ones who’ll be living the plan. In fact, try this quick test to get an idea of whether your reps are aligned with company goals: Ask them, “How could max out your earnings this quarter?”
A simple question. But if the answer is too simple (“Um, sell more?”) then your reps don’t understand your comp plan. And if they don’t understand, they’re probably not doing what matters most to the company.
On the other hand, if they know they’ll earn more if they go after SPIFFs, improve margins, bring in new customers, bundle products, include training in deals … then you know your priorities are coming through loud and clear.
3) Rewards or incentives? Aren’t they the same thing? Well, no. There’s no question that rewards are nice, but they’re recognition for past behavior. Incentives, however, drive behavior. They provide motivation. You want your salespeople to keep their eye on the prize, and do whatever it takes to earn it. Ideally, they have real-time visibility into their performance so they know at any time how close they are to achieving their goal.
4) Measure performance frequently. Xactly has identified several important trends by analyzing years’ worth of data among our customers. Our analysis of that data shows that reps hit quota at a higher rate when they have quarterly quotas: 67 percent average attainment vs. 60 percent attainment for reps who have annual quotas. When you measure quarterly, you can correct course for market changes, competition, the economy, and other variables.
The Deloitte survey also recommends that managers also consider the complete employee lifecycle when evaluating their sales organizations.