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Don't Just 'Flip the Switch' and then Fall Asleep at the Wheel!

By: J. Mark Davis, Managing Principal, Valitus Group, Inc.

Part 1 of this two-part article made the case that it's important to regularly monitor the effectiveness of your sales compensation plan. That includes the all-important quantitative measures of plan performance covered in Part 1, but also extends to more qualitative assessments of sales compensation effectiveness, which is where this article picks up.

It reminds me of a conversation I once had with a corporate compensation manager wherein he described all the data analyses he used to assess the effectiveness of his company's sales compensation plans. When asked what else he was doing to gauge incentive plan effectiveness, he replied, somewhat indignantly, "I've looked at all the numbers. What else is there to do?" Fortunately, I was ready with an answer. My advice to my comp manager friend is the same I give to you: stop admiring your endless data tables and graphs, and consider the following eight qualitative assessments to better evaluate the overall effectiveness of your sales compensation plan.

1. Performance measure alignment - Are incentive plan performance measures aligned with the current business objectives and go-to-market strategy? Continuing to pay primarily on revenue while senior management beats the drum of profitable revenue growth is a clear disconnect.


2. Exceptions monitoring - How many exceptions are being requested and granted? Were these exceptions anticipated during the incentive plan design and implementation process or are they a surprise? A good sales compensation plan will allow you to comfortably manage to the rule, not the exception.


3. Ease of administration - Difficulties here can be somewhat of a chicken versus egg thing. Do you wait until your systems tracking and reporting capabilities are completely ready to handle the new plan or do you go ahead and implement your strategic direction vis-à-vis the new sales comp plan, despite its being supported by a hodge-podge of spreadsheets? If you have problems with plan administration, it's important to determine the cause: systems constraints, plan design issues, or user non-compliance (e.g., sales managers creating unreasonable exception requests). Some good questions to ask include:

      a. How easy is it to track and report performance results?
      b. How easy is it to marry those performance results with payout calculations?
      c. Are you able to consistently make on-time incentive payments?
      d. Are there problems with payout calculation accuracy?
      e. How many FTEs are required to administer the new plan relative to the old one?


4. Management input - Interview select stakeholders from the Sales team for anecdotal insights in terms of what's working well and what's not working well. Valuable insights may also be gained by soliciting input from other functional leaders (e.g., Marketing and/or Operations), particularly if cross-functional coordination in the sales process is a key success requirement.


5. Sales force survey - Survey the entire sales force to get more statistically significant data to augment interview anecdotes (See sample survey questionnaire). This may be most pertinent following the introduction of a new plan or when a known change is being planned for implementation in the near future.


6. Customer input - It may be a novel concept, but actually asking key customers for their input may provide benefits in terms of understanding whether desired changes in sales behavior are occurring as well as in their level of satisfaction with your customer-facing resources. Case example: for a consumer electronics client, we asked select customers what they needed and valued from the vendor's sales resources. The findings prompted the company to deploy a new merchandising-focused role that freed the sales reps' time to spend on more value-adding (in the eyes of their customers) activities. The end result? Improved sales effectiveness and customer loyalty.


7. Retention or recruiting problems - Are you experiencing above-normal unwanted turnover? While such turnover is rarely the result of compensation alone, the question should be asked. Separately, are you having difficulty attracting new talent into the organization? Perceived inequities in the competitiveness of the sales compensation plan could be a contributor.


8. Sales compensation philosophy alignment - The plan should be evaluated relative to the fundamental tenants espoused in the overall sales compensation philosophy. This includes basic philosophical guidance around such things as the use of commissions versus quota-based bonuses, the use of caps on upside incentive opportunity, and the desired dispersion in incentive pay between top and average performers. You don't have one of those, you say? Well, that's a subject for another day.

In conclusion, you must consider both the quantitative (often easier to see) measures as well as qualitative indicators of sales compensation plan effectiveness in order to know when and where changes are necessary. Your business environment is not static. Nor should the sales compensation plan be considered static, particularly in light of the amount of pay delivered through variable, performance-based means for many sales resources. As such, it's an absolute must to continually monitor performance in order to optimize your significant investment in compensating the sales force.