Are You Optimizing Your Sales Compensation Program?
- Compensation program workloads vary widely throughout the year, with intense periods followed by lulls
- An annual cadence allows companies to do more during the down periods, making it less stressful during the busy times
- Use the four stages of annual compensation planning to maximize the effectiveness of your plan today and in the future
For many years, the perception has been that athletes have to train as hard as possible to perform at their best. However, it has been proven that the right training at the right time leads to much better results. This approach is called periodization. An analysis of multiple studies showed that those who used periodization increased strength by 28% compared with those who did not. By aligning training to what is needed to be at peak performance, athletes work smarter instead of harder.
The same can be said for optimizing sales compensation plans. Over the course of the year, the level of effort required to design and manage compensation plans moves through key stages. To make the most of them, acknowledge those stages and conduct specific activities for optimization. Listed below are the four stages managers need to go through during the year to ensure their compensation plans are run well and continue to improve:
- Prepare. Launching and implementing a compensation plan requires a significant amount of coordination. Implementation requires program approval, system updates, and a communications plan to be successful. This usually takes three to six months and should be completed before the new year starts.
- Implement. During this phase, compensation plans move from concept to reality. The intensity of this phase depends on the effectiveness of the preparation and the significance of the changes. Focus areas for this phase are communication, implementation, and program changeover (e.g., moving systems to the new plan). This is typically executed in the first three months of the year.
- Evaluate. Once the implementation phase is completed, the next step is to evaluate the progress of the sales compensation program. This should start in the second quarter and typically continues through the third quarter. During this stage, evaluate the previous year’s results, solicit feedback from sales reps on the plan, and conduct a health check on the current year’s plan to ensure it is on track.
- Improve. During this phase, companies make the compensation program better than it was the previous year. This is done by gathering feedback from exceptions results and company goals and objectives to develop a series of changes that improves the new year’s sales compensation program. This usually takes three to six months and is critically linked to the evaluate phase.
Just as an athlete periodizes their training to improve performance, sales compensation teams should use periodizing to maximize the impact of their program. Coordinating around the four stages of the annual compensation cycle can ensure this happens.