Mike Martin, a principal at management consulting firm ZS Associates, says every sales compensation design kickoff meeting he remembers participating in recently made “keep it simple” a top objective, yet nearly every plan ended up being more complex than any of the team members had originally hoped.
“Part of the challenge was that there was no tipping point on when the plan went from simple to complex. Each change was taken by itself and seen as an incremental but worthwhile addition. But what if we could define that tipping point?” Here are his tips for making that work.
1. The rule of 3. Providing three things that the sales rep needs to do to achieve his bonus could be one measure of simplicity. Once your plan requires four things, it’s officially too complex.
2. No more than seven success metrics. Once the rep needs to remember more than seven numbers to know how he’s performing, your plan is too complex. This cap on seven performance metrics comes from the psychology behind remembering telephone numbers. Studies have found that most people can recall a sequence of no more than seven numbers or items. Seven metrics may seem like a lot, but if you have three products, each with its own target revenue goal and metric, that’s six numbers already. Add in an overall performance number or rank and you’re at seven numbers that a sales rep needs to think about to assess his own success.
3. Applying adequate weights. If a single metric accounts for less than 15 or 20 percent of a rep’s pay, the rep will ignore it. That means that you need to limit yourself to no more than six metrics so that the weights of each can exceed 15 percent. Any additional complexity stops providing benefit.
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