Effective Sales Compensation Plans
On a recent trip to India, which some say stands for “I’ll Never Do It Again” I was struck by the confusion that was on the first road we drove. The drive was from Jodhpur to Jaisalmer, which is just a few miles from the Pakistani border. I discovered that there are very few street signs in all of India.
People navigate by asking another “local” and receive directions based on landmarks and monuments. Many of the roads connecting cities and villages are little more than one lane, making driving a constant challenge, and passing a breathtaking experience! On this drive of about 2½ hours, we shared the road with dogs, sheep, goats, monkeys, donkeys, camels, elephants, tuk-tuks, cars, buses, trucks and people walking with major loads on their heads.
First, many companies also navigate by inquiry rather than available empirical knowledge.
They ask friends and associates what they do, just like we asked directions in India. And they proceed to develop plans based on what they think they heard.
Occasionally they think to ask a professional organization that samples incomes, but this isn’t the same as a compensation plan, it’s in the “expected earnings” category and serves to help recruit versus effective for their firm.
Like the roads in India, there are myriad confusing variables to be taken into consideration, including:
• Does the firm have a transaction or an annuity model?
• If it’s an annuity, what is the trigger that causes the next purchase?
• Is it a direct sale or a channel sale?
• What actual influence does the sales rep have?
• How are leads developed and distributed?
• Is it a geographical sale or a market sale?
• If it’s market, is it also vertically oriented?
• What does the competition do?
• What kind of sales person is the best recruit?
• Is longevity in the position important?
• What is a reasonable time to become proficient in the company’s products?
• Does the “on-boarding” process work, and result in quickly effective sales people?
• Is there an expected performance level, and is it defendable/rational?
• Is income tied to an expected quota?
• Is the quota “seasonalized” so it matters periodically, not just at year-end?
• What is the right mix of base and incentive compensation?
• Does the incentive actually motivate desired performance?
• Does the sale typically require additional support people to conclude it?
• Is there a personal connection with the customer developed during the sales
These are typical questions I ask when I review and/or develop a compensation plan for sales teams. The answers aren’t always easy to discern but, they do matter!