Editor's Note: A poorly crafted, implemented and/or communicated sales compensation program can really create problems. Here with some Classic words of wisdom on how to avoid trouble and position for success in sales compensation is Chuck Csizmar.
I used to think that, of all the compensation schemes out there, the most detailed, the most carefully crafted, the most committed to memory were for the sales force. Like the stereotypical jail-house lawyer, sales employees could detail to management the inner workings of their incentive plan - and often did. Nothing got past them.
That may still be true in your organization, but with increasing frequency I've found myself immersed in a client's troubled sales compensation programs, struggling to salvage the incentive schemes of companies whose reward train had plunged off the track.
Studies have shown that it's often not the design but the communication of the sales comp design that is to blame. Even quality programs find it difficult to overcome the damage that can be caused through errors in explanation.
Flubbing the message
Plan effectiveness is weakened when a company fails to properly inform their sales force as to what's expected of them, and how they'll be rewarded.
Here's what should be included in every sales plan document.
- Show the money: Highlight the target incentive figure and you'll get their attention. The more at risk the greater likelihood behavior will change.
- Clarity of objectives: If you want to steer performance, provide a sense of direction. The sooner an employee knows what you want them to do, the sooner they'll start to focus.
- Clarify thresholds and caps: Two common questions are, at what point do payments start, and are they capped?
- Administration rules: Not exciting but necessary to help employees understand the plan and how it works.
- How much, and for what?: Show how payments progress as performance increases, whether using percentages, commission rates or a combination.
- Estimate earnings: Examples drive the message that better performance delivers greater rewards.
- Limit key objectives: Focus employee efforts to maximize performance. Provide no more than four - with none weighted less than 10%.
- Appeal process: Explain the method of handling payment calculation issues. Questions are to be expected, but don't make employees search for remedies. Be upfront about how to deal with problems.
Your plan should be distributed before the start of the performance year. Too many plans are still being "finalized" during the 1st quarter.
Left to their own devises some sales employees could drive the business off the cliff and into deep financial problems - if the pay is good.
The wrong kind of selling activity can also pump up revenue without a corresponding increase in margin. Generating revenue without profit is just being busy.
Failure to provide proper written communications will gain you the following:
- Confusion: What exactly am I expected to do? How will I be rewarded? These are questions you don't want your employees to be asking.
- Dissatisfaction: An employee unhappy with their incentive plan reduces their degree of enthusiasm and engagement.
- Unwanted activity: Chasing sales that don't maximize margins or don't push new product / service lines.
- Unrealized expectations: "But I thought my check would be for X"? or
"I didn't know you wanted me to focus on that."
- Missed opportunities: if your marketing focus points in one direction while your sales force heads in another, the achievement of critical results (i.e., revenue, new customers, market share, profits, etc.) may be left in limbo.
If you know what's considered "success" for the company, and you aim your rewards toward achieving those objectives, then you've created a win-win scenario for the employee and for the company.
Just make sure you tell the right folks.
Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations. He is also associated with several HR Consulting firms as a contributing consultant. Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation. He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.