Setting Sales Quotas Is Top Sales Comp Challenge

By SHRM Online staff Jul 25, 2012
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A majority of organizations struggle with setting fair and accurate sales quotas that provide effective incentives for their salesforce, according to research by WorldatWork, an association of total rewards professionals.

Accurate quota setting was a major incentive compensation issue cited in the association's 2012 Sales Compensation Practices Survey for the High-Tech Industry report, based on a survey fielded among compensation managers at U.S.-based high-tech companies from February through March 2012. The findings were consistent with earlier cross-industry research, including the association's 2010 Sales Compensation Programs and Practices survey report.

“The biggest challenge in quota setting is finding the right balance," said Jim Stoeckmann, CSCP, a practice leader for WorldatWork. “Setting quotas too high can give organizations the illusion that they’re closer to making their revenue goals, yet it may frustrate a salesforce that sees the quota as unachievable. Setting them too low will negatively impact revenue and result in underperforming sales teams."

Sales Quota Issues and Practices

The 2012 survey among high-tech companies found that:

Accurate quota setting and overly complex plans are the biggest issues identified by surveyed companies.

The top performing sales representatives typically earn more than twice the target incentive for all roles.

More than three out of four companies use some incentive method to encourage higher price points for their products (promoting sales by offering discounts lowers the price point and can skew the effectiveness of sales-based incentives).

A majority do not use any type of special incentives to encourage selling early in the performance period.

Two-thirds of companies complement the sales incentive plan with a recognition program to reward top performers; most use contests or SPIFFs to spur short-term focused sales efforts. SPIFFs (special payment incentive for fast sales) are an immediate bonus for a sale.

Most of the companies standardize compensation plans and roles across multiple countries.

Most companies do not spend more than 5 percent of revenues on sales compensation.

In addition, WorldatWork focus group research conducted in May 2012 found that sales compensation professionals are equally frustrated with finding education, resources and training focused on quota setting.

Related Toolkit:

Designing Compensation Systems for Sales Professionals, SHRM Templates and Tools, December 2011

Related Articles:

Pay for Sales Staff Rising as Economy Thaws, SHRM Online Compensation Discipline, January 2012

Components of a Commission-Only Sales Plan, SHRM HR Q&As, January 2012

Sales Compensation Plans Can Cultivate Growth, SHRM Online Compensation Discipline, May 2011

Pink: Money Is Just One Motivator, SHRM Online Compensation Discipline, May 2011

Compensation Is Not the Only Tool in Your Sales Toolbox, SHRM Online Compensation Discipline, May 2009

What Motivates the Salesforce May Surprise You, SHRM Online Compensation Discipline, January 2008

Related SHRM Video:

Nancy McKeonCompensation for Sales Managers

Steve Grossman and Nancy McKeon of Mercer's sales effectiveness practice say sales managers need a different compensation structure from sales reps.

Quick Links:

SHRM Online ​Compensation Discipline

SHRM Salary Survey Directory

SHRM Compensation Data Center

SHRM Metro Economic Outlook reports

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