Within five minutes of announcing an incentive plan, someone on your sales team starts to find ways to game it, says Christopher W. Cabrera, author of “Game the Plan: Every Sales Rep’s Dream, Every CFO’s Nightmare” (River Grove Books, 2014). Cabrera is the founder and CEO of Xactly (Xactlycorp.com), a provider of cloud-based incentive compensation and performance management solutions.
Too many companies walk away from incentives thinking they create a scenario in which every win by a team member means a loss for the company. The only thing a “loss” means is that someone wrote a bad plan, Cabrera says. Instead of fighting the gamers on your staff, build your incentive plan knowing that your sales reps will take every possible means to earn their badges, bonuses, checks, extra PTO days or whatever other bait you dangle in front of them.
A recent blog post on Xactly’s website provides six questions for increased insights into building better sales compensation plans:
How should I structure the base vs. variable pay mix?
The mix of base and variable pay should be largely unique, based on your organization’s demographic and what drives individual employee needs. Benchmarking lets you compare your compensation mix to other companies in your industry, in your area, or that are of comparable size, enabling you to gain insight into how companies at all performance levels are structuring compensation. Once you see how you stack up — that is, once you figure out what you’re doing right and what needs to be improved — you can make informed changes to your compensation strategies that have been verified by data to improve other businesses’ bottom lines, and therefore position your company for similar boosts.
How should I handle quota timing — should I pay monthly? Quarterly? Annually?
Quota timing, as well as short and long measurement periods, can impact results. Take a look at your own data, and then look at the data of best-in-class companies. You’ll find that monthly or year-to-date quotas with good accelerators for deals signed early will give reps plenty of incentive to meet, and even exceed, quotas. In addition, data shows that quick commission payments — those received at the end of the month for work done at the beginning — also control revenue spikes.
Am I capping profits when I cap commissions?
Commission caps are typically used to control spending or when leaders are worried about reps making more than managers do. Capping might seem like a good idea under those circumstances, but our data shows that most reps don’t meet 120 percent or more of their target incentives. In other words, if you cap your plans, you’re telling your reps to put on the brakes at a certain point. And that point could be well below what your reps are capable of reaching.
Am I paying too many people per deal?
Lots of companies have no idea how many people they pay per deal or order. When they find out, they’re absolutely astonished. Xactly Insights™ looks at data from companies at all performance levels to determine how many people paid per deal is too many.
How many measures should I include in my plan?
There’s no doubt that measures align compensation with company objectives, drive sales performance and reward outcomes. So it’s tempting to want a gazillion of them. But too many measures contribute to unnecessary plan complexity (more on that in the next question). Leaders of best-performing companies give their sales teams the best possible chances of succeeding when they keep their measures focused.
How complex should my plan be?
The more complex compensation plans become, the more they enter into a zone of high costs and low value because they lack benchmarks and ease of use. Our data shows that the more complex compensation plans are, the worse the company results. Keep in mind, though, that poor results can also reveal that your plan isn’t complex enough. The key lies in the balance.
