Is Your Compensation Plan Helping or Hurting You?

The most effective sales compensation plans include numerous layers of motivational triggers to maximize a rep’s focus and achievement throughout the year. Far too often we rely on cash compensation as the only form of incentive and unwittingly hamstring our ability to get the most effort out of our reps.

These questions will help uncover your compensation plan’s strengths and weaknesses and provide some actionable insights along the way.

Make your compensation plan predictable enough for reps to know how much money they are making while flexible enough to embrace changing market conditions.

Plans should be tied to your sales cycle; yearly or evergreen plans may fit multi-year sales cycles but highly transactional cycles of less than a week, day, or even a few hours, might need to pivot monthly. Most companies (60-80%) should embrace a quarterly adjustment schedule to maintain maximum performance and predictability.

Paying out can have adverse effects on your rep’s mindset and performance. If paid when the client closes, they are incentivized to close as many deals as possible. Whereas, if they are paid when the client is invoiced, they may work hard to negotiate favorable terms for the company knowing they get paid sooner.

If you pay when the client pays, that incentives the rep to get all of the money up front, which may result in more discounts for clients, but greater protected cash flow for the company. The best comp plans balance deal size with cash flow risk to the company.

Having to payback commission is tough to swallow for reps. Then again, it's not ideal for reps to have no consequences for their actions or think that there is no documentation of consequences for bad deals. It’s important to balance the consequences and the causes.

The best plans typically apply the difference between the clawback against the balance of future commissions. Many companies have clawback clauses that give the company the legal right to clawback, but often they don't enforce it and it merely acts as a deterrent or point of leverage for disciplinary conversations.

Don’t offer too complicated a plan. 2-4 simple tiers or escalators can be used to motivate strategic goals such as industry penetration, a new product launch, or clearing inventory of end-of-life products. Keeping it simple will help motivate but not overwhelm reps. A well constructed plan will also keep them from niching down into a single category to exploit the compensation plan’s incentive.

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Each payout milestone is useful when properly applied to your company and sales cycle. Yearly rewards and incentives should be very difficult to achieve, but also very lucrative. They present the most gain for the rep and the company.

Quarterly is the perfect balance of effort to reward gratification delay. If you ask reps to wait too long, they may become discouraged or disengaged.Monthly, weekly, and daily, should be activity-based incentives, for when leading indicators of sales are necessary to build the pipeline or momentum for new ventures.

The most effective compensation plans are part of a  planning effort between sales, marketing, client success and finance. Key annual metrics and goals should be established with 70-80% targets set at the beginning of the year.

20-30% can be adjusted, both in amount as well as in time periods, based on performance. This provides teams with a strong baseline, but also gives leadership the flexibility to adjust targets to market conditions and ongoing performance.

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Money is a soft motivator, that will lose motivational value over time. $5k is effective when your commission check is $15k, but if your commission is $100k that same $5k might not be worth additional effort. This is often why you see reps ‘letting off the gas’ when they’ve already hit their quota.

This is where accelerators, tiers, and non-monetary incentives help them find that motivation. Trips and president clubs are good, but not great. iPads are too generic and often regifted. Non-monetary motivators are things like presentation or speaking opportunities, exposure to executives, title increases, additional vacation days, or items they can't buy. Stock or equity are technically monetary but fit somewhere in the middle.

A compensation plan works best when it's tailored to address the motivational profile of each rep. Use motivational profiles tools during the hiring process to understand these motivations when building a tailored compensation plan. Common motivational assessments are Strengths Finder, Myers-Briggs, and PRINT. Rose Garden exclusively uses PRINT to garner the most accurate and consistent measure of someone’s motivational profile.

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Trained reps are highly valuable and your compensation plan has lots of potential to help retain them. Effective comp plans disperse lucrative payments and incentives over time and tie reps to the company for future payouts. Adding a clause to the contract that stipulates current employment with the company is required for incentive disbursement creates the right amount of tension to motivate your most effective reps to stay.

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