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Dealing With a Dynamic Economic Environment: Compressing the Sales Compensation Planning Timeline

By Shawn Rossi and Jonathan Minor

Shortening the sales compensation planning cycle has become a key driver of success in today’s tumultuous economy. While this may sound like a tall order, there are significant benefits to be gained. More and more, companies are taking the necessary steps to reduce the amount of time it takes to analyze sales compensation program effectiveness and implement course corrections.

Why Shorten the Planning Cycle?
There are many reasons to shorten the planning cycle. Doing so will:

• Lessen visibility problems. Today more than ever, predicting business results is extremely difficult, making it even tougher for leaders to set goals. Shortening the planning cycle increases management’s opportunities to match sales goals with changing business goals.
• Maintain motivation. When goals are shown to be unrealistic in practice, sales incentive plans quickly lose their motivational powers; they may even become de-motivational. Shortening the planning cycle enables leaders to reevaluate the attainability of sales quotas and reset goals to keep them realistic.
• Ensure alignment with the business. In contrast to prior downturns, recent economic events have not just reduced demand across the board, but actually created wholesale shifts in markets. The issue with shifting markets is that, instead of requiring relatively simple adjustments in goals, they require a reevaluation of the entire go-to-market strategy — not just changes in sales quotas, but new incentive metrics and potentially new sales roles. Shortening the planning cycle will allow leadership to understand and respond to these challenges in the short-term rather than operating the balance of the year with a sales incentive plan that is dysfunctional, or worse, irrelevant.

How to Shorten the Planning Cycle
Instituting three management practices can shorten the compensation planning cycle:

• Ensure frequent access to critical information, and prioritize it. In the current environment, where having the pulse of the business is imperative to survival, timely data is more important than ever for business planning. Depending on the type of business and the compensation plan structure, some businesses have changed from a monthly review of performance data to a biweekly review. Unfortunately, this requires more work — which must often be done with fewer resources. The reality is that some data will likely need to be sacrificed in favor of more critical information.
• Define a set of incentive design principles and parameters. In many companies, decision-making has been centralized among leadership or within certain functions over the past year. Develop a set of compensation design principles and keeping the decision-making rights with the people who know it best — typically a cross-functional team from sales operations, finance and HR. Suggested design principles and parameters are:
• Limiting the number of incentive metrics to three and agreeing on a list of acceptable metrics,
• Agreeing on the limits with respect to threshold and upside levels, and
• Agreeing on the degree to which sales goals can be changed.

Having a set of incentive design principles and parameters will empower decision-makers to act more quickly.

• Streamline the number of plan effectiveness metrics. Too much information is distracting and counterproductive. Prioritizing the metrics will help. What are the critical business results on which leadership has decided to focus? Is it cost control? Maintaining market share? Each has clear implications for plan effectiveness metrics.

Finally, many organizations are abandoning their annual benchmarking exercises, not just because the typical fear of attrition has subsided, but also because of the belief that recent pay data does not reflect current talent market realities. In the short-term, benchmarking pay levels can probably be ignored in favor of more critical analyses.

Shawn Rossi is a vice president in the Atlanta office of Sibson Consulting. He works with companies to develop and implement sales strategies and sales effectiveness programs that maximize results. He can be reached at 678-474-8275 or srossi@sibson.com.

Jonathan Minor is a consultant in the Chicago office of Sibson Consulting. He works with clients to align rewards structures with performance and business strategy. He can be reached at 312-456-7912 or jminor@sibson.com.