How effective is your sales compensation plan? Does it help you attract the people you need and are you able to keep your top performers? If you’re not satisfied with your compensation plan, you may have one or more of the following sales compensation plans pitfalls. As you review each one, think about your own sales compensation plan.
1. One size fits all.
Having a uniform compensation plan may sound fair, but is rarely effective. Unless all your salespeople enter your company with the same experience and do exactly the same job, compensation becomes an issue. Such factors as size of the territory, potential of the territory, types of accounts and experience of the salesperson usually necessitates some adjustments in the compensation plan.
Tip: Make sure your compensation plan fits the various needs and demands of your people, the job, and the company’s goals.
2. Punishing high performers.
Some companies have a philosophy of “how do we prevent our salespeople from making too much money?” This approach de-motivates high performers. Basically, the plan tells high performers “once you make this much, your income potential stops… no matter how much extra revenue you could bring in for the organization.” This doesn’t mean companies should give their people a blank check. It means that if high performers can find ways to increase the company’s revenues and profits, compensate them accordingly.
Tip: To maximize the potential of your sales force, give worth-while incentives for your high performers. Give them a reason to stretch
3. Subsidizing mediocrity. Many compensation plans set the performance standard too low. Salespeople receive better than average compensation for doing average performance. Plans that encourage salespeople to “just make quota” settle for too little… and usually get it. High performing organizations view quota as the minimal standard or starting point for achieving financial success.
Tip: Make sure your plan is both challenging and realistic.
4. Discouraging rookies. Most sales jobs take time to learn. During this learning period, new salespeople usually produce less revenue and make less than experienced salespeople. If the new salesperson can’t make enough to live while learning the job, they will become discouraged and look for another opportunity.
Tip: Create a compensation plan that helps salespeople make the financial transition from rookie to an experienced salesperson.
5. Playing games with people’s paychecks. The quickest way to destroy trust and de-motivate salespeople is to play games with their paychecks. When any change, mistake, or adjustment to a paycheck happens handle it quickly, accurately and with a proper explanation. If you change the pay plan, make sure people understand it before rolling it out. If you miscalculated a bonus or commission, correct it immediately. How you respond in these situations is as important as what you actually do.
Tip: Be honest, direct and responsive in all actions that impact salespeople’s actual paycheck.
6. Looking at compensation as a cost not an investment. The goal of sales is to acquire customers. The goal of a compensation plan is to motivate salespeople to acquire as many of the right type of customers as possible. Managing compensation as a cost requires organizations to restrict it, which in turn restricts the organization’s ability to acquire customers. Managing compensation as an investment focuses on the return generated by the compensation plan and not just the amount spent.
Tip: Develop a compensation plan that products the best ROI.
7. Providing incentives for the urgent and not the important. Why do so many companies experience peaks and valleys in their sales? Often it’s because they only focus on short-term goals at the cost of long-term growth. One company placed a premium on acquiring new business and succeeded. However, they neglected their existing customer base and lost as many existing customers as they gained new ones. Churning customers is a dangerous and unprofitable practice. Remember, when you introduce an incentive for one thing, something else suffers.
Tip: Before introducing an incentive, make sure you understand its full impact.
8. Letting the compensation system manage performance. Compensation plans give structure and incentives for the sales force. They should support management’s goals and strategies, not replace effective leadership and coaching. The compensation plan is a tool for managers to use with other performance management tools and activities (i.e., performance appraisals, forecasting, training, etc.) to maximize sales performance
Tip: Integrate the compensation plan with your other performance management tools to maximize performance.
9. Failing to teach people how to win. One definition of motivation is “winning is fun and losing isn’t.” If this is the case, a manager’s job is to help his/her salespeople win. Since the compensation plan provides the rules of the game, managers must show their people how to play and win the game. This is particularly true when you introduce a new compensation plan or for new people. Showing them how to win motivates and invites loyalty.
Tip: Know how to win with your compensation plan and teach your people how to do it.
10. Overlooking the power of psychic compensation. Money is a strong motivator, but it’s not the only motivator. By leveraging such psychic compensation as recognition, praise, feedback, teamwork etc., you can elevate your sales organization’s performance to new levels.
Tip: Besides money, find out what winning is for each salesperson. Then help them make their personal wins.
Summary How many of the pitfalls have you experienced? How many are exist with your compensation plan? Developing the right compensation plan requires a careful analysis of such factors as:
• The market
• Your work unit (region, office, etc.)
• The Company
• Your Personnel
• Your Goals
• The Resources / Tools Available
This analysis helps you develop a sales compensation plan tailored to your needs. Take the time and effort required and both you and your people will be justly rewarded.
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