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Keep It Simple for Sales Compensation Success

Complex plans can demotivate, turn off top performers

A business woman is standing in front of a board with graphs on it.

The economic environment is driving sales compensation plans toward higher payouts for overachievers and increasing the role of incentives in the pay mix, according to a new study.

The report, Sales Compensation Programs and Practices, draws from a survey conducted in July and August by WorldatWork, a nonprofit association of total rewards professionals, and consultancy OpenSymmetry. Responses were received from 246 WorldatWork members, mostly from large North American companies, earlier this year.

Clear and Focused Metrics

The survey revealed that 71 percent of responding organizations use three or fewer performance measures in their sales compensation plans, such as total revenue and key sales objectives or milestones showing across-the-board importance for all of the salesforce.

"As best-in-class sales teams push for more aggressive goal-setting and higher rewards, simplicity in the sales plan design is key to tracking performance and shaping sales behavior in a more focused and impactful way," said David Blume, senior vice president of sales and marketing at OpenSymmetry. "Highly complex sales compensation plans with too many performance measures can demotivate sales teams and contribute to rainmakers scattering their efforts amongst too many targets or just jumping ship, period. Furthermore, having a few key performance measures allows sales compensation plans to remain agile enough to change quickly in response to shifting corporate goals, industry tide and regulations."

[SHRM members-only HR forms: Commission Incentive Plan and Payout Schedule]

Get Managers Onboard

According to half of the respondents, providing training and communicating with sales managers to gain their support is critical for a successful sales compensation program.

In situations where sales managers or sales reps didn't understand or support the comp program, respondents were likely to deem their sales compensation programs unsuccessful.

"The news these days is highlighting the importance of communicating clear expectations and having a strong culture of accountability in sales compensation, and with that, goals need to be set at a level where they're challenging but attainable," said Kerry Chou, CCP, senior practice leader at WorldatWork. "Effective communication is at the core of the top critical success factors in this survey, whether through selecting the appropriate mix of professionals for the design team who understand the expectations and culture of accountability, having an effective goal-setting process, getting that buy-in from management or providing consistent messaging from management."

When a sales compensation plan has an unsuccessful launch or execution, "it shouldn't surprise us that some of those same communication factors are revealed as lacking."

Among other survey findings:

  • 90 percent of organizations have a formal plan that details the governing terms and conditions for sales compensation.

  • 63 percent of organizations have documented policy guidelines that govern the process, manner and frequency of reviewing sales compensation plans.

  • 53 percent said there was a single individual with the power to authorize changes to the sales compensation plan; for 28 percent of respondents, that authority lies with the top sales executive, and for anot her 25 percent of organizatinos, that power rests with the corporate president or CEO.

Related SHRM Articles:

Keeping Sales Compensation on the Rails, SHRM Online Compensation, June 2015

Applying Analytics to Sales Incentive Plan Design, SHRM Online Compensation, January 2015

Boosting the Effectiveness of Sales Compensation, SHRM Online Compensation, February 2013

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