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The Holes In Sales Compensation Plans

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Being an employee has always been sort of a complicated relationship in my eyes. When you have a job, you try your best to enjoy it and be good at it, which we all like to see as the primary motivation for our daily efforts. But who are we kidding? We also get paid for what we do, and we feel much less motivated when the compensation isn’t appropriate.

Money matters, and if you tried to look for a salesman who likes to sell for leisure, I can safely say you wouldn’t be successful. Everything in a salesman’s life — from quota to commission — boils down to money. The stumbling block is the way money is measured and distributed.

This is the core of the reason why it’s so important for a company to have a perfectly assembled compensation plan. It doesn’t only serve as a tool for rewarding and evaluation, but it also plays a huge role in the overall motivation and working efficiency of a sales team. Today I’m not going to talk about the specifics of compensation — instead, I’m going to talk about key aspects of a business that impact on your comp plan, and ultimately the sales team as a whole. Whenever you’re setting the annual comp plan for the team, the quota for an individual, or are thinking about changing anything, take a step back and consider these four things.

Misunderstandings in strategy

The foundation of a well-functioning sales compensation program lies much deeper than the calculations and multipliers; it all startsback in the company’s strategy and goal alignment. Getting a clear idea of what your business is after in a certain period will help you tweak the compensation system in ways that will encourage and support the desired sales patterns. A car salesman who hits his quota by selling a bunch of sedans, when the dealership wants to be pushing SUVs so he can get a higher allocation next year, might well be on the chopping block, even if he’s the highest paid guy on the team — and he won’t know why if you haven’t communicated the strategy.

Replacing keepers with hunters

It’s an important part of a salesman’s job to take care of a customer’s experience even after a sale has been made, through regular updates and follow-ups. However, just keeping your current customer base will not give your company’s revenue the boost it needs to reach this year’s increased quota. If your salespeople are great at pampering but suck at hunting for new opportunities, you should start considering your options; you can balance their base salary vs. incentive ratio to increase motivation, or you can hire people who’ll be more suited for the wild hunt.

Error location and analysis

I’ve never seen a process in any organization, anywhere, that doesn’t occasionally encounter errors. That’s completely natural and desirable even, because errors pinpoint the weak spots and enable you to further research and improve, no matter what you do.

However, if errors aren’t quickly detected and corrected, they can spell death. If you start to notice problems in results, it’s time to take a step back and assess where things go wrong and why, before it’s too late.

Adaptation 

Big companies often suffer from a certain form of stiffness that prevents them from quickly adapting to changes desired by the market. The resulting difficulties may have a devastating effects on the workforce’s compensation and motivation levels, and end up messing up the company’s finances to a point of no return.

Regular meetings, training programs, and self-education throughout the company will help everyone stay on track, improve your business’ response to competition and eventually improve the way you handle your salespeople’s compensation decisions.