Sales Compensation Plan Renewal

Every year David Chicelli and The Alexander Group do a survey on sales trends and practices.  I’ve just received the 2018 version, and while there are numerous percentiles, averages, and all sorts of numbers that would sate even the most hardened statistician, the most relevant data is on companies plans for their newest Plan year.

This isn’t necessarily headline-making data, but it’s “attention-grabbing” if you are in a company that ignores this most basic principle of sales compensation planning and design, that being:

Sales Compensation Plans Are Annual Plans

And there’s the headline.  Here’s the context.

Over 90% of participating companies reported that they planned to make changes to their sales plans in 2018.  That’s an excellent result in my opinion.  It doesn’t imply that 10% of companies have totally ignored the need to at least evaluate their plans, it could mean that they evaluated them and decided no change was needed.

If you were in the 90%, what sort of things might change – according to the survey?

  • 44% said they needed better alignment to business strategy (#1 priority when I work with companies on their sales compensation plan designs is to make sure we have solid connection to the business strategy).
  • Changing the pay mix (base/incentive ratio), earnings caps, ramps/accelerators and performance measures are the most frequently reported changes made on an annual basis.

What about changes during the plan year?  Not something many sales people can get behind in my experience, but that doesn’t mean it wouldn’t be the right thing to do if need be.  As a matter of fact, the survey indicates that in 2017, over 50% of participating made some sort of change during the year, from minor tweak to total do-over!  What might be good reason to make a change?  Here are a few that come to mind, in most cases clear as to why you wouldn’t “tough it out” until the end of the year:

  • Change in the business (new product/service, selling partner or channel, etc.) – i.e., new strategy
  • Significant upturn or downturn outside the rep’s control
  • Inaccurate sales data so commission calculations are wrong or not trusted
  • Significant miscalculation of quotas
  • Lack of pay differentiation between low and high performers (is the plan attractive enough for your top performers?)
  • You can’t manage the plan – too administratively difficult
  • Your salespeople can’t understand the plan – too complex
  • Excessive costs, cost of sales well outside budget

I wrote about compensation change more generically in my June 2016 Compensation Connections newsletter (I even used the same picture because it “speaks to me.”)  Sales compensation plan change is a little more critical to most businesses, given the stakes involved.  I’m grateful that Alexander Group takes the time every year to help make that point through their survey.

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