The Secret of a Sales Compensation Strategy

August 13, 2014 Doug O'Grady

the secret of a sales compensation packageDeveloping a sales compensation strategy should never feel like a simple task, as it's not. If you've tried your hand at developing such a strategy and you found the task simple, the work of a half-hour in Power Point, then you need to stop and revisit what you developed. A sales compensation strategy should be subtle, thoughtful, and built on a strong insight into the people you're compensating, the goals you're working for, and the limitations of your company. The secret to crafting a successful sales compensation strategy lay in four core concepts, which should form the basis of any sales compensation strategy worth considering. In this article, we'll discuss those four core concepts; what they are, why they're so important, and how you can put them to work for you when the time comes to create a sales compensation strategy.

Outcomes.

Considering outcomes should come first and foremost at every single step of sales compensation strategy development. Take in to account everything that might result from a particular choice. A majority of compensation plans have unintended consequences lurking in them, encouraging behaviors that are suboptimal at best and harmful to the company at worst.

Quite simply, whatever behavior you reward will become the behavior you see-choose an innocuous metric, such as closed sales, as the basis for your sales compensation strategy, and that's all you'll get. You'll get closed sales, but they'll be rushed: customer satisfaction might plummet, returns might spike, more profitable but harder to move products might sit unsold. Always consider as many possible outcomes as possible when formulating your sales compensation strategy, or your company will suffer for it.

Flexibility.

Once you begin considering the question of outcomes more seriously, you might realize that different forms of compensation might result in different outcomes at different stages in the company's life. That means that whatever your overall sales compensation strategy may be, it needs flexibility to keep up with those shifts in the state of the company. If you need to encourage the sale of a new product line over one in decline, or to encourage shorter sales cycles, or to reduce returns through an extended sales process,  your sales compensation strategy needs flexibility that can make that happen.

Hard and Soft Data. 

If you're aware of potential outcomes and ready to shift your sales compensation strategy as needed, the last key piece of the puzzle lay in data. The more information you can gather on how you sell (and fail to sell), the better you can tweak your compensation for superior outcomes. But don't forget the value of soft data and less concrete problems, the sort that don't show up in your ERP metrics until it's too late. For example, you may establish an ideal sales compensation strategy for maximizing profits, and see those amazing profits for quite a while, but if the way you compensate doesn't keep morale up then you'll begin seeing your best sellers leave the company or burn out. That's a poor path to long-term profits.

Cash Doesn't Matter.

This isn't strictly true-cash matters quite a bit. But studies have shown that cash-based incentives programs baked into your sales compensation strategy aren't going to give you the returns you expect. For one, they're bad for morale and keeping turnover down, because psychologically cash loses its association with the work that earned it very quickly.

The best incentives are personal and tied concretely to the company. Paid vacation is almost the exact same as cash bonuses, but works much better. Quality benefits programs, access to a company car, discounts on company products, those are the benefits that make people appreciate their own work. Highly personalized bonuses work even better--tickets to an event your top seller wanted to see, etc. A strong set of personalized benefits will lure in and keep Fortunate 100 talent at middle business salaries. 

How to Make Sales Compensation Work For Your Company


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