As anybody in this field will tell you, sales compensation is often an ocean of choppy waters and raging waves. Storms come through frequently and can be difficult to navigate. This is especially true in the area of plan governance, where the sheer number of stakeholders to please is a major challenge. The nature of sales compensation leads to frequent conflict; those in sales compensation leadership positions need a navigational plan to steer through these storms. Following are five obstacles to prepare for and principles to use to help you navigate around them.
Exception requests happen almost daily in some organizations. The greater the amount of complexity in your sales organization, including the variety of products sold, the more likely it is that you'll receive frequent exception requests. When receiving this request, the following steps should be taken:
Employee transfers are another common scenario, which may come up as a more specific type of exception request. Transfers can come in two different flavors:Â
One of the trickiest issues of all that commonly comes up in sales compensation is the determination of who should be credited. In general, the role of sales compensation leadership should entail providing policy and guiding principles, but not making final decisions of who should be credited with what amount. For instance, as mentioned earlier in this article, one guiding principal should be that within the same role (or a set of roles), credit as a percentage should not exceed 100%. Sales leadership, not sales compensation leadership, should be determining what those split percentages should be. Sales compensation would not have enough visibility into the sales process to determine that Person A should receive 70% and Person B should receive 30%. In the majority of cases, as soon as it's determined multiple people within the same role (or set of roles) need to be involved in a sale, it should also be determined how the split should take place. Leaving that decision until later is a mistake.Â
Depending on the size of your organization, a sales compensation governance board may be a good idea. A governance board meets periodically to review exception requests and policy decisions that have come up since the last meeting. The governance board should include the leader of the sales compensation function, as well as representation from sales and HR leadership. For smaller organizations, the head of sales compensation can act as a one-person board. Either way, the decision-making authority should be documented in plan documents, along with the process employees should follow to request any exception or review.
Plan Design Showdowns
While not specifically part of the governance of existing compensation plans, another type of sales compensation conflict that commonly occurs is a strong difference of opinion on a plan design decision. On a recent client engagement, a sales leader for a particular group felt strongly that a certain component should remain in place when others on the design committee felt differently. In such cases, it is important to spend time getting to the root cause of the disagreement. In this recent engagement, a component existed that paid an employee for taking on a new client, before they actually made a new sale or renewal. After looking into the matter more closely, it became apparent that the reason for wanting to pay for this wasn't to pre-pay, but rather it was a proxy to reward employees for carrying larger books of business than their counterparts. Once this was better understood, the design committee was able to discuss whether the plans should be built to have different compensation target amounts for different size ranges of the books of business that the employees carried. From this, we can learn not to rush to vote or decide such conflicts, which inevitably leaves one side feeling like it lost in the decision. Instead, take the time to discuss the underlying reasons for the disagreement since frequently the conflict is not as much of a conflict as it first appears.
Learn How to Navigate the Obstacles
It's not possible to control the weather, nor is it possible to prevent conflicts in sales compensation. Learning how to sail a ship across the ocean means learning how to navigate the weather and obstacles as you travel. The same is true in sales compensation governance. Consistent application of principles such as these can ensure a ship stays afloat. Prepare for the storms of conflict in sales compensation governance, and you'll stay afloat too.
About the Author
Josh Miller is managing principal at OnTarget Incentives in Phoenix.
Read the September edition of Sales Compensation Focus.
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