Sales Reps & the Comp Process: Hey – Where’s my Money?!
Posted by: David Kelly on Aug 12, 2011
Sales Performance Management (SPM) is all about empowering, incenting, measuring, and eventually paying the sales force to align its behaviors and tactics with corporate goals. The compensation plan is a key part of the SPM process. Ideally, it rewards the payees for doing what the company needs them to do. If your sales force is focused on doing things for their own benefit that will also benefit your company, it becomes a win-win.
The payees’ perception of the comp program should always be, “If I do this good thing (sell more, sell more profitably, or sell a better product mix), I will earn this reward.” The value is lost when it turns into, “I did this good thing (at least, I think I did…), now where’s my money?” At the end of the day, the same good things might be accomplished, the same rewards paid, but the willingness to do the next good thing might well be compromised when the commission or bonus is seen as payment due to be fought for, rather than as something to aspire to.
What this means to Sales Ops and Finance is that a compensation system that is perceived as an impediment to collecting commissions and bonuses will bring the ROI for the whole incentive compensation program into doubt among the very people who should be trying to find ways to earn more rewards. Every step forward they make will be immediately followed by a look back to see if the comp system is keeping up.
There are many ways an ICM system can become a roadblock in the sales incentive process.
The ones we have seen most commonly include:
- Inaccuracy
- Lack of transparency
- Unnecessary complication
INACCURACY: Almost any comp system more sophisticated than long-hand calculations on yellow stickies should be able to calculate accurately – assuming it is operating on good data, and assuming it is configured properly, that is, set up in accordance with your business rules. Of course, these two assumptions can be pretty big “ifs.” And sometimes it takes a data rationalization project to address one or both of these issues. But either way, if the commission and bonus calculations coming out of your comp system aren’t correct, the payees will spend more time looking back at old deals than looking forward to new ones.
LACK OF TRANSPARENCY: Even if the comp system calculates properly, if it isn’t clear and explicit about what has been credited and how much is being paid according to what rules, the users will not have confidence in it and will spend an unacceptable percentage of their potential selling time checking up on it. Thoughtful reporting of meaningful metrics and useful information will go a long way towards redirecting the payees’ attention forward towards selling instead of looking in the rearview mirror.
UNNECESSARY COMPLICATION: Can your sales force describe in 25-words-or-less exactly what they must do to optimize their commission checks and help your company achieve its goals? Or do you have so many complex terms and conditions wrapped around the sales compensation process that no one can answer that question? The most accurate and transparent comp system in the world won’t counteract the negative effects of 15 pages of legalese tacked onto a comp plan, especially when the legalese is all about the reasons why business won’t count towards the payees’ incentive comp. A system implementation project can be a good time to revisit the language and logic of the plans to get to a simpler model that the payees can understand and work towards, rather than one to be deciphered after each deal is reported.
Compensation systems and processes are all about changing “wrong” behaviors and reinforcing “right” behaviors. It’s as much a psychological problem as a technical one. It’s reasonably easy to get the right answer, eventually. But you have to make it easy for the payees to do the right thing. Making them fight for what you’ve promised them takes their concentration off the next deal, and this has a direct impact on top line revenue.
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Author: David Kelly
David Kelly is an Incentive Compensation Management (ICM) Solutions Architect with Merced Systems. He has more than a decade of experience in translating ICM business requirements into maintainable, high-performing systems for many companies across various industries. He can be reached at david.kelly@mercedsystems.com.