I love motorcycles – not just riding them, but understanding how they are engineered and how they work. If you’re anything like me, that fascination has led you to do some maintenance or even repair work yourself. And if you’ve ever turned a wrench or tightened a bolt, the first time you worked on it probably included an awkward period of learning. Hopefully, you had a mentor who could help you as you fumbled through your early attempts to scale the learning curve.
At some point, that mentor probably saw you using a tool for the exact wrong thing. Your mentor stopped you, no doubt, and told you what that tool was really for.
Compensation management is a little like one of those tools in one specific way: many people make the wrong assumption about what it’s supposed to be used for. The assumption is that compensation is simply a tool to ensure that salespeople get paid. But that’s not its real purpose.
Compensation is really a tool for encouraging the behaviors that lead to success. Selling more is a behavior that helps your business, and that translates into higher commissions. But as customers evolve, customer expectations change, and your salesforce becomes increasingly data-driven and data-enabled, compensation must play a central role in changing sales behavior to keep up with a changing sales environment.
Commissions are important – and providing transparency into how commissions are being calculated is important to ensuring the satisfaction and loyalty of your sales team. But sales reps already sell. Are there other things they could be doing to encourage greater customer loyalty, longer customer lifetimes, and improve their own satisfaction with their jobs at the same time? There are – and the best way to ensure your reps are engaging in these behaviors is through incentive compensation.
For example, the B2B customer experience a sales rep creates during each sale is critical to setting the groundwork for the next sale. You want the customer to conclude a deal not just with a signature on a contract but with a great feeling about that deal, a feeling that the sales rep plays a key role in creating. By tying customer experience monitoring and feedback into the compensation system, sales reps can be rewarded for setting up deals to come in the future – deals they may not close themselves, but for which they laid the foundation.
A more basic application of this idea centers on technology adoption. We know that the right technology can increase the productivity and the results of sales pros – but if you’re a sales pro, and you’re reaching your goals regularly, and you’re taking home an amount of money that keeps you satisfied, why would you change what’s working for you? Why would you suffer through the temporary pain of changing your process if that pain seems greater than the reward? Using adoption statistics to provide a component of compensation can help nudge sales pros past their reluctance. Some organizations are draconian about it – “no compensation on closed deals not entered into CRM!” – while others use softer approaches that are akin to gamification. In any event, compensation serves as a helpful reminder to the sales team of what’s expected of them and steers them toward a behavior that rewards both the sales reps and the business.
Compensation – in the form of SPIFs, for instance – can steer sales people toward selling the products that the business most wants to sell. It can persuade sales people to work harder for margins in their deals (in many cases, making CPQ utilization a must). It can encourage them to budget time for training they might otherwise skip. It can reward them for making inroads into a territory or vertical market your company is targeting but hasn’t yet broken into. In other words, if you can identify a behavior that will make your sales reps more valuable to your business, build in into your compensation plan.
The key to this is identifying what behaviors you genuinely want to drive, and base compensation on metrics about the adoption and execution of those behaviors. Don’t make the mistake of rewarding a component of the behavior, like the number of calls a sales rep makes, or the number of times a rep logs into an application. These may seem like indicators of behavior, but they are not – they are mere components of that behavior, and they can be gamed by sales reps. Resist the urge to use the easiest-to-collect metric if it doesn’t directly indicate the adoption of a behavior you hope to drive.
Also, realize that incentives are there to encourage behaviors – behaviors that should remain even after the incentives have changed (and they will, to keep up with changing customers and markets).
Using compensation merely as a commissions automation application represents an enormous missed opportunity to affect change that will help the business, the sales reps and, in many cases, your customers. If you identify the behaviors you wish to see, understand the metrics to measure those behaviors, and incorporate those metrics into your compensation plan, your sales team will respond in ways that move the needle for your business.