Sales Compensation: Do's and Don'ts

September 1, 2014 Brett Evans

sales compensation dos and dontsSales compensation can be considered one of the most important aspects of developing your sales team, but you should ask yourself some hard questions when the time comes to develop a compensation strategy. It may be tempting to let common sense be your guide as you endeavor to create a system that keeps morale high, reduces turnover, and pushes team members to their reasonable limits, but don't be fooled-common sense can be a dangerous thing in these waters. In this article, we'll discuss three Dos and three Don'ts to keep in mind as you put together your plan.

DO

Make sure you're incentivizing the right behaviors. You can't always know exactly what metrics to base your sales compensation strategies on in advance, as the 'important metrics' can vary greatly between industries, sales mediums, even between teams, but that means it's important to pay attention. Watch your metrics, watch your performance, and figure out the behaviors you need to encourage. Know that your team members WILL optimize around incentives-they won't do the right thing and hopefully score high in the proper areas, they'll do the thing that scores them highest in the metrics you measure. So think it through!

Make sales compensation personal and work-associable. You want your sales compensation to do more than one thing at a time. That means personalized compensation that your workers will always associate with the work they do. If you can, for example, give your top workers tickets and time off to see their favorite sports team play, that's the sort of compensation that turns your team up to 11. For more generic rewards, you should stick with things like special benefits, access to a VIP break room, company cars-rewards directly linked to the company, to keep the work/reward relationship alive.

Make sure your team understands and buys in to the sales compensation scheme. Many sales compensation strategies fail through simple failures to communicate. Make sure your team knows what they have to do to improve their compensation, and what they shouldn't do in pursuit of those rewards. Communicate clearly what's needed and what's expected, and if your system seems to confuse anyone, it might just be too complicated. And make sure to get the sales agents to buy in to the system, if you want it to be anything more than another drain on the budget with the best benefits going to whoever happened to do best, instead of your sales compensation becoming a booster to performance.

DO NOT

Rely much on cash for sales compensation. Cash incentives show themselves time and again to be near-useless, according to every study of the subject. Individuals will quickly disassociate their cash from the extra work that earned it. Without that reinforcement, cash bonus systems tend to cause a brief flurry of effort then a stagnation into mediocrity-while still costing you more than more efficient compensation might.

Obsess over sales compensation. Compensation shouldn't be considered the ultimate solution to your problems. Paying your workers more, or giving them more perks, won't make them happy if your team leaders are ripping them to shreds, setting unreasonable goals, and overworking them. Turnover won't drop if you never challenge your workers and never recognize their successes. Few problems can be solved by compensation alone.

Use excessive competition or the metaphorical stick. Your sales compensation strategy should focus wholly on the positive. Using it as a way to threaten underperformers, shame failure, etc., will only reduce worker morale. More than that, it fosters egocentric behaviors that have no place in generating maximum output from your team. It's a goofy cliché, but the "No I in Team" line's true all the same. Don't blow up all the good morale and teamwork you've created with good decisions with an oppressive sales compensation strategy!

How to Make Sales Compensation Work For Your Company


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