- Sales compensation programs start with a strong foundation of corporate goals and objectives, go-to-market architecture, a plan and guiding principles
- Ensure sales roles, pay components and total targeted compensation link back to the program’s foundation
- Use an annual or semi-annual health check to stay focused on the sales experience and the effectiveness of the program
As many companies enter their fourth quarters, sales and sales operations leaders are preparing for the annual strategy and planning activities that surround sales compensation. Before the current year is through, leaders and their teams must incorporate next year’s priorities into a sales compensation strategy and program. SiriusDecisions’ Comprehensive Guide to Sales Compensation is a new e-book that identifies the 15 best practice steps to an effective sales compensation program.
The process should start early, with two steps from the sales planning process: establishing corporate goals and objectives, and defining the go-to-market architecture to meet next year’s goals. Because it determines what performance measures drive sales reps to achieve, sales compensation planning must begin with a review of corporate goals and objectives. When designing plans, choose only the measure(s) that are affected by sales. Use the same measure(s) to establish the corporate sales plan, set quotas, measure opportunity pipeline, set the forecast and retire quota. When these five elements are aligned, the sales organization and its reps are clear on expectations. Every action reps take aligns with corporate sales goals and ultimately, rewards them financially. The next two steps – creating the plan charter and identifying the guiding principles of the sales compensation program – combine with the first two to serve as the foundation of the overall sales compensation program and plan.
During the sales incentive design process, ensure there is an interconnectedness between the foundational elements and sales roles, pay components and total targeted compensation. Selecting performance measures and setting quotas that are fair and achievable, along with tying them directly to corporate goals and objectives, is a critical step in establishing an effective sales compensation plan. A key requirement of any sales compensation program is attracting and retaining sales talent. Use plan mechanics and crediting rules to influence sales rep behavior. The three following levels of attainment drive the payout curve:
- Threshold. The minimal level of quota attainment sales leadership deems acceptable.
- Target. The level of quota attainment sales leadership expects sales reps to achieve (almost always 100 percent).
- Excellence. The level of quota attainment historically achieved by the top 10 to 15 percent of sales reps.
Ensure these rules and mechanics are defined, visible and transparent to sales reps, and fairly and consistently apply them through a sales compensation policy. If done well, these steps will support a positive sales experience.
Communicating the plans is another essential step; sales reps must understand the plan. At the start of the year, sales managers must talk to their reps at the team and individual level about their plans, quotas and assignments.
Finally, take stock by performing a plan effectiveness check. Conduct a methodical assessment of plan performance so it drives desired results, conforms to financial models and supports retention and growth strategies. Reviewing the plan formally at least twice a year is also a best practice. Identify areas ripe for improvement and change and use these opportunities as inputs for the next planning cycle – which will also be here before you know it!