| JANUARY 2005
What is the right Sales Compensation
"Its who you pay, not how you pay them", writes Jim Collins, author of Good to Great. Last months comments on business planning spurred on a number of questions regarding compensation planning and particularly how to motivate sales in 2005. Hopefully by now you have done some business planning and have some idea of how your sales plan will look. However, I suspect that some people are late in figuring out a new plan. Don't default to last year's plan - use the next week to make the necessary changes to grow profitability in 2005! What should compensation look like?
Jim Collins' comment should catch your attention. If it didn't let me say it again, "Its who you pay, not how you pay that matters". Of course there is some hyperbole in this comment, but the basic truth is; a person's nature does not change when their compensation plan changes. That does not mean that the plan is insignificant; following are some comments on what should be considered in your 2005 plan. If you have not considered some of these things, I recommend rethinking your plan. 1. Set compensation plan objectives To start we should agree on what a compensation plan can do. I agree with Collins; a person's character and work ethic are not going to change with higher leverage or more money. Pay plans can direct people. If you believe that, you should start by listing areas you can affect and gear your plan toward that end. Here is a start:
- Solutions you want to focus on
- Financial metrics such as growing GP vs. Revenue
- Partner relationships you want to strengthen
- Reducing the complexity and contention on pay day
2. Keep your best people Great people do great work. They refuse to accept mediocrity as the outcome of anything they put their hand to. One objective I did not list in #1, might be your number one objective; keeping your best people. One of the managers Collins interviews says this, "We employ five people to do the work of ten, and pay them as though we had eight". While you don't want to pay out all of the company profits, you do want the compensation to attract and keep good people. The idea here is to set up a plan that really does reward the high achievers, pay the average people an average salary, and encourage the low-achievers to move on or at least be noticed. I call this a "self managing pay plan". 3. Habit 4 - Is your plan "Win/Win"? Win/Win is one of those phrases made popular by Stephen Covey, quoted by every company, and rarely implemented. I can't tell you how much productivity is lost over people feeling bitter about their incentive plans; its big. I have met numerous individuals that have spent days, weeks, even a whole quarter devoting half their work-day trying to prove they reached a certain goal, correcting accounting reports, or building a case as to why they should be included in a deal they helped win. The economic impact is just the beginning, not to mention the loss of moral in the office. Win/Win means that both parties win. Many sales plans are created as a competitive, win/lose program. The basis of doing this is the belief that compensation causes people to work harder. While it might over the next few weeks, it won't last through the year. What you really need is a plan that allows every achiever to win. "Salesman of the year" is an example of Win/Lose. Quota club allows everyone who achieves a certain level to win - its Win/Win. You also want your plan to pay out when the company wins, but not when the company looses. Capped plans are Win/lose; the sales person reaches a maximum income level, closes a big project, and goes home with nothing. This results in bitterness toward the company and lost productivity among the team. Using GP based programs pay out less to the rep on big revenue opportunities that don't install as planned, but on the other hand, when the deal goes well and both parties win; its Win/Win. 4. Make sure you really have the right people on the bus Finally, make sure you really have the right people. I have seen many plans that were created to change a non-performing team. Since incentive plans don't change a person's character, and they don't increase one's ability, using the plan for this purpose is a waste of time. Part of January should have been spent evaluating your 2004 performance. As the market changes and your company evolves, the needs of your organization and the demands of your business are going to change. There are people who adapt to change. They spend time reading, listening, and understanding how to be successful in the upcoming year. Others will continue to do what they have always done. Don't expect people that haven't changed, to change now. Don't spend time building incentive plans to create high-achievers out of average/ low achievers. On the other hand, you do want to identify your key players and make sure they will be rewarded before someone else recruits them. |
