It’s Mid-Year – Time for a Compensation Health Check
Every year, seven out of 10 B2B companies modify their sales compensation plans to better align with corporate strategies, adjust to changing circumstances, or simply continue the never-ending quest to find the perfect combination of incentives to maximize revenue and balance costs. Unfortunately, many companies subsequently leave the sales compensation plan unchecked for the rest of the year. SiriusDecisions recommends reviewing sales compensation plans at least twice a year. To assist with that process, we’ve developed a sales compensation health assessment scorecard that evaluates plan impact in four key areas:
Plan Objectives and Alignment
- Does the compensation plan align with corporate objectives and goals for customer retention and growth?
- Is each of the incentive elements guiding the desired sales behavior?
- Is the success of salespeople aligned with key business metrics (e.g. products, services, growth, margins)?
Communications and Reporting
- Have the expectations and elements of the plan been clearly communicated to the sales organization?
- Does sales understand how it’s being measured, what behaviors are expected and how metrics relate to goals and objectives?
- Is the sales organization receiving timely and accurate data for each compensation component?
- Is the channel performing as expected against the targets?
- Do the earnings of salespeople align to their overall performance in terms of contribution, level of effort and attainment of expected results?
- Are quotas calculated based on an assessment of market opportunity? Do quotas include an element for retention and growth? Are quotas aggressive but achievable, and designed to identify and reward top performers?
- Are total sales compensation payouts aligned with the forecasted budget?
- Are on-target earnings aligned with cost-of-sales objectives and competitive within the market?
- Are attrition rates among top performers acceptable? Is voluntary turnover within tolerances?
Are attrition rates among poor performers acceptable? Is the performance plan working as designed (e.g. identifying consistently poor performers, coaching for improvement or moving out of the business)?
- Is the organization able to attract and hire highly qualified candidates?
An assessment of the compensation plan can highlight areas that are performing well, while indicating weak points that need improvement. However, mid-year changes should be made with care and only when prompt action is clearly required. A periodic health check can identify issues before they become serious problems that result in long-term damage to the organization.