New Year, New Sales Goals: Gauging the Effectiveness of Your Incentive Compensation Plan
By Gene Camm
As the New Year begins, so does the push to drive business and increase sales. Creating an incentive plan that aligns with organizational objectives and rewards your sales team can be a challenging proposition. However, an effective incentive compensation plan can instill a high-performing culture if done correctly.
Key Questions to Evaluate Your Sales Incentive Plan
Here are some questions to help determine the effectiveness of your sales incentive compensation plan:
- Is leadership happy with the sales results? If not, which of the performance targets are not being accomplished? Are the goals realistic and attainable?
- Does your sales performance mirror the typical 80/20 rule? That means that 80% of your business is being generated by 20% of your sales force. If so, does your sales team have the proper skill set for what you are trying to accomplish? Are you incentivizing the right behaviors?
- Does your team primarily sell within their "comfort zone"? That means they sell to the clients they know rather than reaching out and expanding their customer base, and they seem only to sell products and services they are very familiar with rather than those the organization wants to sell.
- Are they aware of margins and how they relate to pricing?
- Are the sales team members’ earnings in alignment with outcomes? Are their sales covering their costs to the company?
- Is there significant turnover within your sales team? While turnover is inevitable, retention of highly successful individuals is critical for sustained success.
- Has setting realistic sales goals become too difficult? How are sales forecasted? Does your organization consider seasonality in sales activity when forecasting?
Solutions for Improving Sales Incentive Plans
If the foregoing questions have you thinking about the effectiveness of your sales incentive compensation plan, below are some solutions for you to consider.
- Clarify the organization's expectations for maximizing its overall sales effort. Whether you are trying to gain additional clients or expand your existing customer base, make sure your plan rewards the behaviors you’re trying to create. Additionally, the plan should be communicated well and often.
- Determine what works and what doesn’t work in your sales compensation program. An annual review of plans is best practice, particularly in markets that change frequently. Analyzing the impact of market conditions on sales activities prevents an incentive plan from overpaying for results. If the 80/20 rule applies to your sales force, it is critical to properly recognize and reward the top performers and develop a plan to increase your mid-level performers. Consider modifying your pay plans to motivate desired results for the top and mid-level performers.
- Before making changes to an existing plan, model and pilot the new plan based on results from prior years to best predict the spending for the new plan.
- Once piloted, implementation of new plan features must be clearly communicated, accurately tracked, and consistently monitored to make sure it’s accomplishing what was intended.
Setting a Strong Foundation for Incentive Plan Design
Understanding that plans often fail due to complexity, difficulty to administer, and lack of focus is key to setting the foundation for the design of new plans. Knowing what the desired outcomes are for the incentive plans should serve as a focal point for review and analysis. Finally, the update of incentive plans should consider not only the impact on the organization but also the impact on the individual. Effective incentive plans should result in a win-win for all involved.
Since its inception in 1989, Compensation Resources has served emerging and midsized corporations, as well as Fortune 500 corporations, with creative and pragmatic solutions to meet various business needs. The programs we develop often have as their overriding goal the need to attract, retain, and reward outstanding talent. Combining a commitment to practical approaches with a dedication to quality, CR has earned a reputation for providing sound business advice to its clients with creativity, resourcefulness, and professional accountability in all areas of service.
