Time To Change Sales Compensation Plans?

Recent surveys indicate that almost 95% of companies change their sales compensation plans each year. Frankly, I’m a little surprised by these statistics, and suspect the high number is due to the tendency in many cases to categorize minor tweaks, administrative matters, or even rolling out new quotas as “changes”. In my experience, substantive change occurs with far less frequency.

Statistics aside, the real question is: “When is it time to change a sales compensation plan?”

The short answer is: whenever your corporate objectives, selling strategies or selling environment have changed such that the existing sales compensation structure is no longer aligned. Yes, in other words, it always comes back to alignment, a fundamental requirement of effective sales compensation.

With this in mind, the logical place to start is the annual business planning process. After all, this is the exercise that defines broader corporate objectives and priorities, along with sales and marketing strategies and the associated performance metrics, organizational structures, deployment models and role definitions. In other words, it provides the context within which the sales compensation plan will operate.

Once the results of your annual business planning process are known, it’s then time to look for areas of misalignment or inconsistency in your existing plans, and to make any required changes. For instance, if you are transitioning your Major Account Managers to a “solution selling” orientation, a sales compensation plan based on individual product lines may not make sense. Instead, an aggregate profitability metric is likely better suited to this new selling model.

Or better yet, forget about last year’s sales compensation plan altogether and build a new one from scratch. It’s the sales compensation equivalent of zero-based budgeting. This can be a very liberating experience, and helps avoid being inadvertently restricted by legacy preferences and practices.

Whatever method you use to pull the pieces together, the most important thing to remember is to position sales compensation design as an output of the business planning process (not an input!). This makes aligning sales compensation with corporate objectives as easy as connecting dots, and significantly increases the probability of actually achieving those objectives.

Importantly, this approach also removes much of the contention associated with changes to sales compensation. When salespeople see that changes, whether large or small, are clearly connected to a new corporate direction or sales strategies, push back is minimized. And, assuming you haven’t reduced their earning potential (cynically or otherwise), good salespeople will quickly embrace the new structure and start focusing their energies where they should be focused – on the process of selling.

Change is not a bad thing. Just be sure to do it for the right reasons.