Driving Sales Success

Driving Sales Success

Sales Compensation

Sales Compensation

Your people can be your company’s greatest asset and it’s most unpredictable.  The challenge for many companies is clear:  how do you design compensation plans and incentive sales staff in a way that is transparent, effective and in line with your organization’s strategic and financial goals? 

ACG understands the challenge.  We’ve helped many companies work through the process to arrive at a solution that is unique to their situation, and that helps them grow, succeed and meet their revenue and profit goals. 

To develop an effective and successful compensation program, an in-depth knowledge and analysis of the organization must be conducted, its place in the market needs to be determined and its strategies and plans for the future must be identified.  To develop customized compensation programs to meet our clients’ individual goals, we utilize a proven process that includes the following steps:

  1. Conduct fact finding and diagnostic analyses
  2. Identify objectives/principles for incentive design
  3. Profile sales positions
  4. Determine eligibility
  5. Establish target compensation levels
  6. Determine incentive mix and upside
  7. Define performance measures and payout cycles
  8. Create payout formula(s) and coordinate with plan administrator
  9. Finalize/gain approval of detailed plan design
  10. Implement/ rollout plan (communication, plan documents, calculators, etc.)

With this methodology, we can ensure that our recommendations are relevant to support the business and able to be implemented.

Assessment of pay levels vs. market

We discuss with clients their sources and destinations of sales talent – where they attract new hires and maybe exposed to talent flight.  It’s important to understand companies they compete for business and organizations they also compete against for talent.

Pay assessment helps define the appropriate comparator group of companies to assess client’s compensation to the appropriate market.  A strategic component of pay assessment is to define pay positioning vs. the competitive market – where target compensation levels are relative to others (e.g., 50th, 75th percentile) which has implications for pay mix, cost structure and ability to attract and retain the caliber of talent required to be successful.

Competitive assessment of pay should be done regularly (e.g., annually, semi-annually) to provide fact-based analysis and metrics necessary to make informed compensation decisions.

Sales incentive design and plan modeling

ACG has designed numerous compensation plans for a wide range of organizations with very diverse sales teams and goals.  With this experience, ACG is able to design compensation plans that motivate and reward the sales team while also aligning with key business and sales initiatives increasing sales force productivity for the company. 

To develop a compensation plan that is a win-win for all parties, you must have a broad view of the business.  For proper alignment, many factors, both internally and externally to your organization, need to be considered.  Compensation plans must be well thought out and effectively designed. 

There are three key areas to concentrate on when assessing sales compensation plans’ effectiveness:

  1. Do the sales incentives focus on the key drivers of the business (revenue and profit) and support achievement of the business objectives and goals? 
  2. Is the target amount of total compensation competitive with the market to attract top caliber sales talent and is the incentive design sufficiently leveraged to deliver highly competitive pay for high levels of sales performance? 
  3. Does the plan have a strong pay and performance correlation and does sales compensation generate a healthy return on investment? 

A rigorous plan assessment will help identify a plan’s strengths and weaknesses and identify opportunities for improving the plan design and alignment can enable sales organizations to reach their goals.

Additionally, each year, we recommend conducting a review of the current sales compensation plan.  It is not only a best practice for plan designers and administrators but also a good business decision.

Businesses are in a constant state of change in today’s economy.  Annual plan reviews can help identify opportunities to improve how sales team are rewarded and ensure alignment as the business and markets change. 

There are some fundamental analyses that should be conducted to help ensure the review process is capturing useful and actionable information about the effectiveness of the current plan design, including:

  • Pay for performance correlations
  • Incentive frequency distribution comparisons
  • Pay mix analysis (target and actual vs. market)
  • Quota attainment distribution
  • Compensation cost of sales

ACG helps organizations design compensation plans that are aligned with the organization’s goals; are easy to understand, communicate and measure; and drive success for sales reps, sales managers and the organization as a whole.

Plan implementation and communication

Just creating a plan isn’t enough.  Many plans fail because they are not properly implemented, executed or communicated.  Once the plan is designed, ACG works with its clients to ensure their plans are implemented as designed. 

Part of the implementation process is effectively communicating it to all participants.   A strategically designed plan can look great on paper, but if it is not communicated properly to management and the sales team, the success of the plan will be limited. 

Compensation plans can have a major impact on the morale of the sales team and effect their motivation.  Therefore, communications is a key strategic element from implementing a new sales compensation plan.  Effectively communicating the purpose of the plan to the entire sales team and providing them with specific details of what is included in the plan is critical to the success of the plan.  With pay-for-performance elements, you must properly explain the criteria and measurement of the performance goals and report actual results back frequently to participants during the year. 

Compensation planning is dynamic, so frequent reviews and communications of sales performance, pay implications, and reinforcement of key plan features is essential for keeping the sales team focused and motivated. 

Annual plan communication provides unique opportunities even if sales compensation plans are not changed significantly from prior-year.  Sales management should use plan communication to articulate key sales objectives, why the design is relevant, and how the plan supports the sales force to achieve their goals.