Like the overly complicated tax code in the US, many compensation plans for sales roles are filled with convoluted rewards, confusing tiers and thresholds, and loopholes that undermine the system. Thankfully, it doesn’t take an act of Congress to undo a complex plan or one that’s not garnering the intended results.
Three simple rhymes, yes, rhymes of all things, can put you on the right path to legislating a new set of workable monetary rules.
Comp done right is an evolution, not a new solution
A plan that meets today’s needs while allowing for tomorrow’s changes in your business ensures that you won’t have to make dramatic alterations. A good plan simply has to evolve as your business evolves.
For example, ten years ago I created a plan for one of my clients and it’s never been changed. It works just as well today as it did a decade ago. What’s evolved are the proportions of the commissions as the company has grown in size and market share. More money today goes towards rewarding account retention while a smaller, but still enticing amount pays for new business development.
Getting behaviors right eliminates a compensation fight
One of the biggest plan failings is a misalignment between rewards and behaviors. Attention goes where the money flows, and commissions and bonuses only do all of their intended functions if they focus that attention correctly. Without this focus, leaders find themselves in a no-win fight to get people to behave in the desired manner.
A recent example is a company whose recruiters weren’t generating enough quality referrals. And why would they, since they were paid the same percentage in commission regardless of the source of their candidates. By shifting slightly more commission money to referral generated candidates, more than half of their deals this year have come from referrals and the company is well ahead in year-over-year growth.
Simple is sustainable and makes goals attainable
Compensation plans lose their motivational power when staff can’t remember how they work or if calculating rewards requires more than simple math. The power of the people in any sales organization resides in their ability to clearly see the benefits of doing what they’re being asked to do.
Last year I simplified more than two dozen plans, and all but one are contributing to better financial results for everyone. What happened with that one? A new senior leader hired after the plan was in place decided it wasn’t sophisticated enough and layered in tiers, compensation kickers, rules for when commissions are reduced, and changes that reward activities more than outcomes. While some activities have gone up, revenues are in a steady decline, and even this new leader has trouble articulating how the plan works and how much someone can make on the plan.
While I’m doubtful that US Congressional leaders will choose to move past partisanship to fix the broken tax system, I’m confident that competent sales leaders will do the right thing and fix ineffective compensation plans. Those that do will be voting in favor of their key constituents, their salespeople, who will reward everyone with the right behaviors that generate sustainable growth and profits.
This Week’s Radical Accountability Activating Action: Look at your comp plan with an honest and critical eye, especially as to its complexity, behavioral alignment, and sustainability to become an evolving plan. Then, begin to address any areas of weakness.
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