Incentive Insights: Don't "Undercommunicate" Your New Sales Incentive Plan

At this time of year, compensation professionals are usually finishing up their annual sales incentive design process. They're feeling good about the results, and positive that the amount of time, input, and effort that went into the new incentive plan design will pay off. <br clear="none" /> <br clear="none" /> Executives will like it; the sales force will love it. "Our work is done," they're probably thinking.<br clear="none" /> <br clear="none" /> But not so fast. One of the most important aspects of developing a sales incentive plan is how it is communicated to the field. Remember, the field is not aware of what has gone into the process. Salespeople haven't sat through the design sessions dissecting the data, pouring over interviews and designing the "perfect plan." <br clear="none" /> <br clear="none" /> In short, they are skeptical out of the gate. And without a thoughtful communication plan that involves sales managers, your shiny new incentive plan may not be as effective as you'd hoped.<br clear="none" /> <br clear="none" /> Effective communication of a new incentive plan begins with disseminating the plan and quotas early in the new year. According to the recently released 2009 Incentive Practices Research (IPR) study conducted by ZS Associates, most firms distribute their sales incentive plans to the field within the first two weeks of the year. <br clear="none" /> <br clear="none" /> But not all companies are as diligent, as some don't roll out their plan until the second or third month of the year&#x2014;some firms even wait six months. At such companies, salespeople don't know the parameters of their pay, and therefore don't know where they should focus.<br clear="none" /> <br clear="none" /> Many slow their pace until they know exactly how they are paid and their exact sales quota, resulting in confusion, lower productivity, and distrust of management. <br clear="none" /> <br clear="none" /> The IPR study suggests quotas should be out to the field between two and four weeks after the start of the year, or just slightly later than the sales incentive plans are communicated. Ideally, quotas would go to the field at the same time the sales incentive plans are distributed (within two weeks). <br clear="none" /> <br clear="none" /> But many firms wait until they have all of the previous year's data, they have finalized sales forecasts, and their managers have had time to review and refine the initial quotas before they are rolled out to the field. This takes time, and the desire to have as much recent data as possible in the process can prevent the quotas from being distributed at the same time as the incentive plan. <br clear="none" /> <br clear="none" /> Another IPR survey finding is that companies use an average of three methods to communicate the sales incentive plan to their salespeople. These methods include national sales meetings, regional sales meetings, one-on-one meetings between salespeople and managers, Web meetings, e-mails to the field announcing the plan, and Intranet announcements of the plan including all of the supporting documentation. <br clear="none" /> <br clear="none" /> It is critical to repeatedly reinforce the plan's objectives, how the plan works, and how salespeople are paid&#x2014;a single communication is not enough. The plan needs to be communicated early and often, with follow-up calls shortly after the first incentive payment to answer any questions from the field. It's always easier to listen and understand the plan once it has affected their pocketbook. <br clear="none" /> <br clear="none" /> Another IPR question revolved around the most effective way to communicate the plans. The results are not surprising: The most effective methods are personalized methods like one-on-one meetings, regional meetings, and Internet conferences. <br clear="none" /> <br clear="none" /> While knowing the overall details of the incentive plan are important, salespeople are always asking themselves these questions: "How does it affect me?" "If I hit my quota, how will I be paid?" "If I perform exactly as I did last year, how much more or less will I be paid under the new plan?" "How does any change in quota-setting methodology affect my quota&#x2014;and therefore, my pay?" <br clear="none" /> <br clear="none" /> Carefully modeling each salesperson's payout and providing them with a detailed report can help smooth out the transition to the new plan. The report lets them know how they need to perform under the new plan to earn the income they want. Among the elements included in such reports:<br clear="none" /> <br clear="none" /> &#x2022; What will be the payout next year if the performance is the same as the previous year?<br clear="none" /> <br clear="none" /> &#x2022; How well must they perform to earn $X?<br clear="none" /> <br clear="none" /> &#x2022; What performance level must they achieve to earn the same as last year?<br clear="none" /> <br clear="none" /> No matter what, sales representatives will be asking these questions&#x2026;so you are far better off answering them before they ask. <br clear="none" /> <br clear="none" /> If your company is like most organizations, it has already decided much of its 2010 sales plan&#x2014;the metrics, payout curves, and other pertinent factors. But without effectively communicating the plan to the field, they won't be able to put the plan into effect. <br clear="none" /> <br clear="none" /> You can ensure plans are understood and internalized by communicating them via multiple, effective methods, and by personalizing the information to each individual. Without effective communication, the new plan will not take hold and have its desired impact.<br clear="none" /> <br clear="none" /> But effective communication will lead to clarity of vision between salespeople and sales management, with everyone driving toward a common set of results. <br clear="none" /> <br clear="none" /> <i>Chad Albrecht is a principal and a sales compensation practice leader with ZS Associates, a global management consulting firm specializing in sales and marketing consulting, capability building, and outsourcing. He can be reached at <a href=""></a>.</i>