Frustrated Business People

Compensation Plan Errors to Avoid

Quality sales compensation plans incentivize and drive the behavior of your sales team resulting in revenue generation for your company. While it seems obvious that the compensation plan should motivate your sales team to make the most money for both themselves and the company, frequently the plan gets overcomplicated and doesn’t accomplish what was intended.

Avoid these common errors that can reduce a salesperson’s motivation, sales team performance, and ultimately, your bottom line.

Lack of Alignment Between Individual, Team, and Company Goals

After the company goals are created, take time to align them with the sales team and individual rep goals. If a primary company goal is to increase new business, then the team and individual goals should reward the activities that lead to new clients (inside reps) and adding new clients (outside reps) to a higher degree than the activities (inside sales) that would generate additional business (outside sales) from current clients. Goals should be structured so that if the team and individual benefit, so does your organization and vice versa.

Inadequate Balance Between Base and Variable Compensation

Consider the role and market to ensure your offering a competitive on-target earnings (OTE) package that balances pay and bonuses accordingly. When a new sales rep joins your company, account for the time it takes to complete onboarding as well as the length of the typical sales cycle in your industry as part of the compensation plan. How quickly do you anticipate they will begin earning commission?  Are you offering a base salary that attracts new talent while still encouraging and motivating them to reach their sales goals? Offer a base salary with a variable comp and have the percentage split be motivating.

Sub-par Plan Design & Communication

Keep it simple and clear when you design the compensation plan, so it is easy to understand and communicate to your sales team. Discuss the plan with the sales reps and see if they have any concerns or ideas about the plan. You can adjust the plan more effectively to benefit both parties when you know what is most important to them. Once finalized, take the time to communicate to the team as a whole as well as the individual salespeople.

Failure to Adjust or Update Compensation Plans

Don’t create a good plan and think that you can reuse it time and time again. It needs to be reviewed and updated each year. It is important to be nimble and stay up to date with your industry, market, and employees. In a fast-paced business environment, be willing to adapt accordingly to maximize your competitive advantage. Additionally, if an unexpected situation beyond their control occurs that directly impact your sales team’s ability to reach their goals, you must adjust your plan as needed to continue to drive desired behaviors.

Insufficient Input and Support for the Plan

Encouraging sales reps to give input and feedback on their compensation plans as you are designing the plan and incorporating those elements into the plan helps with buy-in. The final step is having them sign and date their compensation plans as an acknowledgement of their agreement and understanding. This simple step reduces disputes that can arise when variable payments are made.

An ideal sales compensation plan looks different across businesses because there are many variables to consider. Start creating your best sales compensation plan by downloading Steps for Building an Effective Sales Compensation Plan and tailor it to suit your organization’s needs. If you’d like help designing the perfect compensation plan, contact us today to connect with a Sales Leadership Consultant in your area.

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