Best Practices for Creating Your Sales Compensation Plans in 2009
By Christopher Cabrera, Xactly Corp.

With customers nervous about spending in a tumultuous economy, sales departments will feel increased pressure to deliver on quotas and help their companies maintain profitability. And with the knowledge that buying cycles will be somewhat unpredictable in 2009, companies need to put a sales compensation plan in place that can move with the dynamics of their business – so sales and finance can align themselves with corporate objectives and clear a path for meeting them.

Yet, increasingly confusing and complex sales compensation plans – or worse, late or non-existent plans – continue to create road blocks to sales for many organizations. Despite best intentions and efforts, only half of all sales plans will be ready at the start of the New Year.  

But it doesn’t need to be this way. Companies have it within their reach to create more adaptable sales compensation plans that can move with their organizations. Below are seven best practices to create successful sales compensation plans in 2009.

1. Automate. 
According to a recent study from research firm Aberdeen Group, up to 72 percent of companies still rely on spreadsheets to support their commissions process – with the goal of keeping them understandable and easier to manage. As a result, they are severely challenged to achieve top sales performance. Do with sales compensation management what most companies have already done with their CRM processes: automate for efficiency and accuracy, Web-based visibility, cost-effective scalability and easy manageability.

2. Model Before Building.
Assess costs, benefits and risks before launching a plan, process or policy. Model plans and plan changes prior to implementing them to determine their impact. This will provide insight into key factors, including how different order forecasts (using actual or projected orders) will alter budget for incentives or how proposed changes to the organizational structure or quota might change the top and bottom lines.

3. Keep it Simple and Consistent.
Don't confuse and demoralize reps with plans that try to do too many things. A plan is considered too complex if there are more than four key performance indicators (KPIs), or 10 or more conditions exist to determine credit allocation and payment release. Consistency is key to drive desired long-term behaviors. With lead-to-sale cycles guaranteed to get longer and more competitive in 2009, sales personnel have enough to worry about. 

4. Communicate. Communicate. Communicate.
Share new plans and changes with finance, sales operations and HR and ensure buy-in from all stakeholders. This makes sure everyone is on the same page regarding sales strategies and corporate goals, and how compensation will support these strategies and objectives. Managers shouldn’t wait until period-end to share results. Provide Web-based visibility into plans and the compensation process so reps can quickly and easily see in “real time” how they're being compensated, where they stand relative to their plan and their peers, and how much more they can make if they engage in certain sales behaviors. 

5. Keep it Flexible.
Use SPIFs and contests to drive desired short-term behaviors within a consistent framework for encouraging long-term behaviors. Introduced midstream in a plan cycle, they are effective kickers for responding to market opportunities, moving excess inventory and so on.  

6.  Use and Analyze the Data. 
For many organizations, CRM applications have revolutionized the selling process, organizing pre-sales data (contact info, history, etc.) that reps and management need to manage the sales pipeline. But too often, the “post sales” data is orphaned – information on what a customer bought, the final price, the territory where it was sold, etc. Post-sales analytics can provide new and strategic insight into an organization’s selling patterns, commission, product performance, sales rep and team performance, and sales plan effectiveness. Combining, analyzing and integrating pre- and post-sales data regularly into sales compensation plans can supercharge a sales organization. 

 7. Measure Frequently. 
Sales compensation planning, especially in trying times, should not be an annual chore. Yet a recent Hackett Group report notes that only one-third of large organizations in the United States use a rolling forecast. Don't wait to the end of the year to measure the effectiveness of comp plans. Plans aren't static; they have to adjust for changing market, business conditions and sales performance. Stay on top of this with monthly, quarterly or mid-year fine-tuning of quotas, commission rates, territories, etc.

Christopher Cabrera is the CEO of Xactly Corp., a leading provider of on-demand sales performance management solutions. Cabrera is an industry expert in issues relating to sales performance management, sales compensation, and enterprise and on-demand/software-as-a-service delivery models. He is also the co-author of Xactly Sales Compensation for Dummies (Wiley Publishing, 2006). Contact Cabrera at ccabrera@xactlycorp.com.

Contents © 2008 WorldatWork. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.