Your organization’s compensation plan can be used to attract and retain sales representatives, so it’s important to analyze it for effectiveness and change it if it proves ineffective.
These last two points are critical, particularly if your market changes unexpectedly or if your organization finds itself in the midst of a sales slump. In these cases, your compensation plan is a target when management is hunting for an answer to problems associated with market shifts.
It is a quantifiable entity. In a sales slump, people most often search for quantifiable answers to often qualitative questions. The compensation plan offers percentagesJ lump sums, goals, bonuses and commissions.
It can be changed. When an unexpected market shift sends you scrambling to react to something over which you have no control – a competitor’s new product or promotion or a flux in local demographics – it is a normal reaction to reach for something you can control to gain solid footing. Compensation plans can be tinkered with or overhauled by management to control an external force by changing internal operating procedure.
It will change eventually. At some point, every plan must be altered to meet an organizational or market need, but it also could be a pre-emptive response to some dramatic market shifts or trends. Too much emphasis on the compensation plan is just as dangerous as ignoring it. It is dangerous to automatically assume sales reps are not sufficiently motivated by the plan and make changes to it. Sometimes different, deeper, non-sales-related circumstances contribute to a problem. A slump, for instance, can very easily be brought about by falling product quality, a significant factor that is completely unrelated to sales incentives. Yet, to some, it is easier to point to an allegedly unmotivated sales force rather than take care of a more significant production problem.
Factors that may lead you to change your compensation plan include:
- Shifting business priorities. A move from, say, a product-oriented sales structure to one that is more serviee-dhehted.ls a significant shift, one requiring reconsideration of the compensation structure.
- Realignment of territories. A redistribution of accounts or a reassignment of territories would contribute to a need tor a new compensation plan.
- Technology’s intrusion. The Web has redefined the roles of customer and seller. Armed with more information, customers have become more savvy and demanding. Sophisticated automation tools likewise have altered the day-to· day’ roles of sales professionals. When the tasks involved· in sales change or shift, typically the manner in which sales reps are compensated changes, too.
- Team-based selling. More organizations are chasing bigger accounts by employing a well-rounded team concept to the structure and service of a sale – incorporating many different aspects of a business -all geared toward building a strong client relationship. When the structure of a sale changes, so; too, does the compensation plan.
- New product lines. New products or product bundles mean new directions for selling to both new and existing customers. This will, on occasion, bring about a shift in compensation for sales reps that take on the challenge.
- Changing channels. Distribution channels are in a state of flux as newly aligned partners merge their resources to tackle the challenges of a new, hyper-speed economy. As these channels change, so will compensation levels for the sales reps who navigate these channels.
Managing the transition
- Clearing the decks. Wiping out a compensation plan is rarely as simple as issuing a directive. There are prior agreements to live up to and sales reps who may be negatively impacted by an abrupt change. Consider offering buyout agreements to sales reps who have significant investments in any plan you intend to replace.
- Realignment and adjustment. If territory realignment is in the cards, be certain sales reps in existing territories are duly compensated for their work in building up the territory: Try to construct the new plan to allow maximum challenge for all with minimal “punishment” for those who had been doing well under the previous setup.
- Complex incentives. If your goals are complex, you should not be hesitant about adding complexity to your incentive program. For example, if sales reps previously were compensated based on straight revenue, but your business has now shifted its focus to encompass both revenue and strategic product lines, do not hesitate to add that new layer of complexity to your compensation plan. Remember, the plan should reflect the organization’s goals as well as sales rep goals. If one or the other fails, the whole plan fails.
What all this information boils down to is that you must carefully plan your moves when building a new compensation plan out of the remnants of an old one. Stars do not have to be aligned in order for it to work, just your goals and those of your sales team.
Dave Rothfeld is a sales, service and management coach, and founder of Creative Sales + Management Inc. He can be reached at (407) 814-0330 or at dave@csm4tqs.com