5 Best Practices for Sales Compensation Management
If a sales compensation and incentive program is well designed, then business leaders should want to hit their targets and make payouts to their employees and sales reps.
If you view your incentive pool as a fund you’d rather protect (à la Ebenezer Scrooge), then you have a mindset that’s going against the principal of what such programs are intended to do: in this case, to increase sales.
Leveraging sales compensation management positively impacts a company’s top and bottom lines because it aligns sales behavior directly to corporate financial objectives for increased sales performance and profits. Managing the sales compensation process effectively enables a more productive and efficient sales organization that is not only motivated, but also has real-time visibility into their individual and team performance.
5 Best Practices to Maximize Incentive Program Effectiveness
How can you get the most out of your incentive program? The following are five best practices that were derived from a poll conducted by Xactly Corp. among finance officers and compensation analysts.
- Align Finance and Sales for growth and profits. Surprisingly, the majority (88%) responded that sales and finance were aligned in their companies. If you’re one of the 12% that’s not, you’re likely butting heads with people in Accounting trying to coax them to make incentive payments you promised but which don’t jibe with company policy. Having sales and finance in sync reduces the risk of conflict between the functions, which often distracts, frustrates, or demotivates sales reps.
- Automate and centralize the sales compensation process. Allowing each sales division or location to have their own compensation system and process is inefficient as well as potentially demotivating. Streamlining systems and efforts enables sales leaders to track KPIs and institute consistency and predictability across the sales organization. In the same poll as mentioned above, only 18.2% offer web-based reporting and real-time comp statements, which is disappointing given our growing expectation for real-time information and updates.
- Ensure internal process controls and ongoing compliance with the Sarbanes-Oxley Act (SOX). Too many companies (77.2% according to the same poll) still calculate incentives using spreadsheets and back-of-the-envelope methods, which can elevate risks such as compliance with SOX. Spreadsheets require keystrokes that can not only lead to data-entry errors, but more significantly, can change formulas. Manage your risk by moving away from spreadsheets to calculate your incentive plans.
- Align payments to performance. This comes down to rewarding the right behaviors. If you want your sales reps to focus on making large, six- or seven-figure sales but your incentive plan rewards low-figure, high-volume sales, then that needs to be fixed. Determine what you want your sales reps to do and be certain that your incentive program is in sync. And be transparent — let sales reps and sales managers see how they’re doing by providing robust analytics and dashboards to drive sales performance efficiency and visibility.
- Model, forecast, and plan. Living through the economic upheaval of the downturn and recovery period underscored the need for accurate forecasting in order to match buyer demand but also projected incentive payouts across the sales organization. But of those polled, a whopping 72.2% of respondents cannot easily model compensation plan changes before implementing them. When your market changes (whether up or down), you need to be able to analyze moves before you make them.
Benefits of Aligning Your Sales Incentive Plans with Finance
In addition to the above five best practices, here are two other important tenets of incentive plan design and the benefits of aligning sales and finance:
- Motivate your sales reps. How achievable are the rewards in your incentive plan? If the targets are too easy, then your sales reps are likely earning a decent payout and could very well underperform. Conversely, if the targets are too lofty, then they might also not apply their maximum effort because there’s little chance of being rewarded for it. Instead, work with the Finance team to set stretch-but-attainable targets that will produce the desired sales results and recognize the sales reps for their work.
- Be practical, not complex. Do sales reps know how their compensation and incentives are calculated? Does it take a math major to figure it out each month, or can sales reps easily know where they stand? It is not uncommon for companies to tinker with sales comp and incentive programs each year. Unfortunately, that often means adding new features or caveats, which can make tracking difficult. The best programs are simple, both easily explained and easily calculated. Don’t ignore the old “KISS” adage: Keep It Simple, Stupid.
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