Many companies update their sales compensation plans each year. Sales consulting firms ring up huge retainers advising corporations on how to get the most from their sales team members with uniquely-designed variable financial compensation plans. But are these carefully constructed systems truly the best way to motivate a sales force? Yes and no.
I’ve seen some exceptions, but generally when it comes to sales compensation, you get exactly the sales behavior and results you pay for. However, money is not the only motivator. Personal time also is valued by employees, so many savvy firms are finding ways to include benefits such as comp days, vacation, and flexible work schedules within their incentive plans.
That being said, here are five proven ways to motivate sales people through financial compensation.
1) Remember KISS - No, not Gene Simmons’s timeless band of rockers…we’re talking about the acronym “keep it simple, stupid,” otherwise stated as “keep it short and simple” by those with more manners! As a rule of thumb, a variable commission structure should be simple enough that a salesperson can do the math in his or her head in the car on the way back to the office.
2) Don’t only reward financial results – I’ve seen some pretty lousy sales people who simply were in the right place at the right time and closed a deal. Great sales performers not only have exceptional bottom line results but they do the right thing within the company’s sales process. So be sure to reward behaviors as well as bottom line.
3) Mix the time horizons - Don’t heavily backload the compensation plan with end-of-year goals and payments. Include short-term goals and compensation opportunities to keep people motivated year round.
4) Be careful with tiered plans - If not carefully constructed, a tiered plan can motivate a person to stall deals at the end of the year. For example, if a salesperson in December is $100,000 short of reaching a bonus tied to the next tier, he or she has an incentive to wait and close a pending $50,000 sale in January.
5) Reward the Right Outcomes - All other things being equal, a salesperson will focus on the easiest sales. Suppose your compensation plan incentivizes widget sales at the same level as gadget sales but gadgets are twice as hard to close, generally have a longer sales cycle, and are more profitable for the company. On which product line would you expect your team to focus? Make sure your variable compensation plan accounts for these differences.
Clearly, simplicity can quickly go by the wayside if the compensation plan is fine-tuned excessively to account for all of these factors. Carefully develop your compensation plan by putting yourself in the shoes of your salespeople. Evaluate whether you, too, would be appropriately motivated under the system.