To be successful in an increasingly competitive environment, businesses must ensure their sales strategies and compensation plans are in line with the overall goals of the company. Doing so helps ensure compensation plans are viable while allowing you to identify risks, prepare for the future and adapt to unexpected changes and shifting priorities. It also ensures sales teams know what is expected of them and what they must do to achieve results. Yet even the best of intentions will go unfulfilled without a solid plan that ties compensation to business objectives.
An effective sales strategy should encourage strategic selling behaviors, keep the salesforce motivated and help attract and retain top sales talent. However, designing such a plan is complex. It must account for different payment structures as well as historical data and market insight while enabling salespeople to achieve their goals in a challenging selling landscape. Although prepackaged solutions are available, they are often difficult to explain and implement. Most important, they will not be tailored to your unique business needs and, therefore, cannot ensure alignment.
The best plan is one developed from your organization's particular goals and in tune with the needs of the salesforce. If your organization is considering a new sales compensation plan, take the following steps to help ensure it supports your company priorities:
First, identify the goals of the sales strategy — whether to increase revenue, grow market share or launch a new product — and develop a compensation plan that encourages the behaviors that lead to those goals. Just as important are analyzing the current compensation plan to see what is working well and what can be improved, and getting feedback from key stakeholders on what can be done differently. When it's time to design the plan, work with a cross-functional team including human resources, finance, sales, marketing and other functions to ensure it fits with broader company goals, vision and values.
Modeling is perhaps the most crucial part of the sales compensation design process, helping you determine if the plan will be viable while identifying risks and predicting what to expect in the future. There are two main ways to approach modeling. The first is retrospective modeling, or back-testing, and enables you to see how earnings would shift under a new plan, leveraging historical data to anticipate how earnings will shift and how salespeople might perceive those changes. The other approach is prospective modeling, or risk modeling, where you test the proposed plan and view a range of potential outcomes. By modeling, you can make informed changes to compensation to help ensure pay is in line with salesperson performance and overall company initiatives.
No matter how detailed the plan, successful implementation and adoption are contingent upon effective communication. Explaining the objectives of the plan, the reasoning behind the changes and how sales results will be rewarded is essential. Making such information available on the go to your busy salespeople is also integral. Help them optimize their own performance by providing mobile access to plan information when it is most convenient. Using examples and "what-if" calculators will help salespeople understand the plan and what they can do to earn more. Scheduling one-on-one plan review meetings with sales leaders and creating new plan documents, FAQs, tutorials and Q&A sessions will also ensure your sales team is in the know.
The sales compensation plan is developed to keep sales performance aligned with company strategy — any inconsistencies can hurt productivity and result in lower sales and higher costs. That's why keeping the plan on track is crucial to driving desired sales behaviors. This can be done by reinforcing the plan throughout the year and establishing a rhythm for monitoring it to see what is working and if something goes astray. Moreover, the plan was developed based on the strategy and priorities at a particular time; because business needs can change rapidly, the plan should be recalibrated as needed to ensure full alignment as the company evolves.
Creating consistency between sales compensation and organizational objectives is necessary to foster a salesforce of motivated individuals eager to meet their personal and professional goals. By informing the sales team of the company's direction, what salespeople must do to advance that mission, and how they will be rewarded for it, you can drive strong performance and ensure sales goals are met. But a successful approach is dependent on creating, communicating and continually fine-tuning the sales compensation plan, and ensuring it's aligned with where the company is and where it wants to go.
Read the March edition of Sales Compensation Focus.
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