Selling is a competitive field, especially in turbulent markets. That's why many organizations are now looking for better ways to incentivize, reward, retain and recruit high-performing sellers.
However, changing your sales compensation can create a sea of change in other business operations — for better or worse. To make the changes that will create value and manage risk, you need to critically examine your decisions, opportunities, financial investments and alternatives.
“Both the level of the incentive and the type of incentive are important decisions that develop individuals into a high performing sales team. So, understanding the relative importance that salespeople attach to the reward elements is critical,” said Grant Thornton’s Human Capital Services Director Bob Lemke.
“The hard part is that there’s no clear ‘wrong,’ but there certainly is not a clear ‘right,’” Lemke said. “There are directional improvements in a continuous and active management of sales compensation, as markets, services and reward preferences change.”
To make changes that are improvements, you need to have the right perspective and incorporate key factors in your strategy.
Realign your perspective
Think back to late 2019, early 2020. Many companies were planning or implementing their Q1 2020 sales plans and anticipating positive outcomes for the year. No sales force was stalled with the idea of global pandemics, lockdowns, remote working or vaccine mandates. Companies were not preparing to sell off property or worried about managing new health and safety regulations for their in-office staff. Compensation was always a discussion, but nothing out of the normal mode of yearly increases, bonuses and possible new incentives. Things were normal.
Authorities around the world and throughout the U.S. began to lock down, only authorizing essential workers to travel to essential places. Sales organizations had to leap to remote work. Fast forward to 2021, and many remote workers began to realize that working from home had its perks. Many employers realized that remote work was challenging but doable.
Now, sales organizations have adapted — or they are facing a wake-up call. “The approach to selling is different,” said Grant Thornton Advisory Services Manager Jeff Hauptschein. “The way of working and the relationships involved in the selling environment have changed. Retaining and attracting successful sellers is very challenging — especially high performers.”
Sales organizations must adapt to rapid change and seller realignment, whether they know it or not. Adaptation is being forced by higher comp and convenience expectations, talent wars, virtual business operations, health and safety measures, and a general unease about 2022 and beyond. So, how can employers intentionally realign their perspective for success?
Incorporate different perspectives
At the start of any sales compensation change initiative, sellers and their employers may be operating from different perspectives. Employees want a clear path to maximize their own earnings, and employers want to drive profitable growth by executing their post-pandemic selling strategies. Both are valid objectives and, if these perspectives are aligned, the sales organization has an opportunity to increase revenues, drive productivity, sharpen back-office efficiency and influence overall success.
The sales force wants to feel valued, so fair compensation goes a long way to accomplish that. Good pay, incentives and benefits helps to build and maintain confidence in the organization as well as in the products or services they are selling.
Employers can build confidence and trust by promoting an operating model that helps the sales force better understand their incentive structure, trust their compensation, and rely on real-time back-office support.
The employer’s goal is to keep the sales force performing at its highest potential, so there’s an opportunity to adjust sales compensation plans in light of the newfound realities of the “Great Resignation,” employee wellness, and a rapidly changing economy across workforce segments.
Pay and benefits are tied directly to these and other employment issues, so addressing them will work in the organization’s favor. Because commissions usually make up a large portion of a company’s income statement (liabilities), decisions must be derived from higher-level Financial Planning & Analysis (FP&A) efforts. FP&A should align with compensation plan design and associated sales strategies.
Update your plan with 3 factors
Once employers have realigned to understand the current marketplace and the supply/demand changes affecting their business, they will be better positioned to update their sales compensation plans. Effective sales compensation plans are actively managed and intentionally redesigned over the course of the quarter, half or fiscal year. If employers can embed a repeatable process and governance practices to enable a smooth, collaborative process from design to implementation to launch, the organization at whole is better positioned to create value and manage risk while staying agile.
Once a decision to make a change in sales compensation is made, taking action can involve 3 key factors.
Communication, review and flexibility are important elements for any successful organization that is confronting the changing business world, and they’re especially important for your sales compensation strategy:
1. Communicate to motivate
Communication is vital to success in almost every area of business, but many executives may miss opportunities to engage key stakeholders that manage different aspects of sales compensation. If communication around sales compensation changes, processes and procedures is ineffective, it can quickly and negatively impact employee confidence, motivation and productivity. It can also simply confuse sellers.
“Sales compensation plans are complex,” Hauptschein said. “They’re not as straightforward as they might have been in the past, for more limited, tangible goods and services in less volatile markets. Sales reps don’t always fully understand quota setting, nor the various components that make up variable compensation packages.” As plans become more complex, your organization might need to develop better tools and platforms for understanding and tracking performance from deal to payout. “The ability to understand how to go to market to beat the quota is always the game,” Lemke said. “So, without that logic and the right tools, the seller could be confused about aspects of the quota and become frustrated by it.”
2. Review annually
Given that changes to the industry, economic environment, compensation trends, products and other factors often change the factors that determined a strategy’s original design, it is imperative to examine and refresh an organization’s sales compensation programs.
“During the annual or semi-annual financial planning and budgeting process, take a more deliberate look at the products and services that the organization is going to market with,” Hauptschein said. “There may be products that aren’t doing very well, or new products that are expected to grow in consumption. It takes a cross-functional effort to design plans around market conditions and strategy, which can be very impactful to the P&L.” Be willing to adjust to internal or external events — and keep your sales force apprised of the changes to improve sales force confidence and, ultimately, productivity.
3. Build flexibility
The product and services mix that a salesforce sells can vary widely. The market success or failure of these products or services also varies. So, should compensation be the same for underperforming products as opposed to popular products? What about high performers during a pandemic — should they get any special incentives? These questions are at the heart of an effective sales compensation strategy.
Your strategy must be flexible enough to meet the needs of the sales force (in-house or remote), must align with the performance of the products or services being sold, and must be flexible enough for an agile sales compensation team to keep it up to date.
“What’s important is how we support the sales organization and how we provide the tools and resources to the sales teams,” Lemke said. “It’s not just keeping score of how much they’re getting paid or how many widgets they’ve sold, but preparing them to go to market from start to finish.”
The alignment to improvement
Align and implement intentional and specialized compensation plans to help your sales force stay focused on the task at hand: highly productive selling.
Ensure that your sales leaders, internal business partners, and sales compensation teams work together to forecast and address changes that should be reflected in corresponding compensation plans. These are the integration factors to consider when taking a fresh look at your organization’s sales strategy and associated compensation plans in today’s changing business environment.
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