Building out a compensation model for sales shouldn’t be that difficult. After all, most of us who have been in the position to manage this process have also been sales people once upon a time. As they used to say on the old Top Gear - "what could possibly go wrong?"
But the road to a compensation plan is strewn with paths that lead to unintended consequences.
Example. Forty years ago, US citizens were much more egalitarian than nowadays, and the Senate voiced concern that CEO pay scales seemed quite high at about ~30x the average worker’s remuneration.
Accordingly, the SEC pushed through a rule change that forced CEO salaries to be publicly disclosed. (You can see the train wreck already...)
Cue an increase in exec pay from 30x in the ‘70s to 230x today, as CEOs demanded higher salaries and bonuses, using data from their competitors’ annual reports as proof that they were underpaid.
A more recent rule change with unintended consequences concerned the Olympic cycling team that deliberately lost - because by so doing they would go into a weaker group for the second stage of the competition and have more chance of success. The introduction of a “round robin” was not meant to make it easier to win by losing - but clearly had that effect.
Sales people are good at gaming the system and sometimes it’s worth putting a rule into the compensation plan to let them feel like they are winning more than they should. After all, if they’re gaming the system and it’s to your advantage, then everyone wins.
Example. When a company I worked for changed from revenue to margin based commissions, sales management was extremely concerned that highly confidential margin data would become exposed to customers, who would use this to drive down average sales prices over time.
Actually, the opposite happened. When the company implemented retrospective commission kickers as soon as deal gross margin exceeded a certain amount, sales people actually increased the average sales price and gave away less discount.
What was most interesting was that the average gross margin across the company in year 1 was pretty much exactly at the level where the extra commissions kicked in - and no more. So sales reps still felt the need to show a discount to customers – but just found ways to ensure that margins stayed at or above the magic number.
Now of course we all assume that sales reps are driven by the almighty dollar in their commission cheques, whereas everyone else and especially ourselves are much more altruistic. (Well maybe not.)
But actually, sales compensation plans can be driven by completely different measures and some companies are even experimenting with doing away with commissions altogether. Cultural and social recognition systems are popping up in even in traditionally macho-sales companies.
One of my old competitors in the cyber sector recognised 40% or more of its employees without spending more on compensation budget – all the while reinforcing its culture and style to drive growth. Our compensation model by contrast remained the same. We recognised <5% of the workforce - with the consequence that 95% of employees felt disenfranchised and envious of the sales guys and their awards, Astons and avarice.
SalesOps is the traditional owner of the sales comp-plan but maybe we should dare to say that SalesOps also has a duty of care to the wider organisation - to ensure that everyone is pointing in the right direction and unintended consequences don’t creep in.
As the team uniquely suited to come up with new compensation models, maybe SalesOps should be the “senior partner” in helping the company align, reinforce culture and deliver its strategic objectives through effective holistic compensation?
Compensation plans - we love 'em! Want to know more?