Part Four: Establishing Incentive Compensation
We’re continuing on our series aimed at outlining the five areas of sales performance management (SPM) and ways you can improve your company’s SPM strategies using all the tools at your disposal. The fourth step to SPM success is focused on establishing incentive compensation.
Most companies use incentive compensation as their primary motivator to drive sales performance. And that makes sense, considering that on average companies spend 11% of their revenue on incentives and compensation. So it’s important that the compensation plans established motivate sales to achieve quota, while simultaneously increasing productivity. Finding and understanding the right balance between cost of compensation to drive attainment and benefit of increased revenue generated is an ongoing process within every organization. It can be very difficult to discern without robust modeling capabilities and analytical data for support. So, how do you ensure that you are sticking to the right balance?
To begin with, it’s important to make sure that the incentive compensation strategy fits tightly within the overall sales performance management strategy. The best way to leverage the overall SPM budget is to link incentive compensation to the KPI’s being utilized in sales coaching to reinforce the selling behaviors that directly result in better quota attainment. To further enhance the incentive compensation strategy, integrate the system with CPQ so that sales can see the impact up-sell and cross-sell can, and will, have on their paychecks.
Automating Compensation Management
Administering automated, user-friendly systems that include timely payments, transparent reporting of the compensation process itself, and the ability to enact changes quickly have helped organizations to positively impact sales trust and productivity. According to Gartner: “Midsize businesses and enterprises report that legacy and redundant ICM functionality, errors in paying distribution partners, and the cost of maintaining older systems can create sufficient cost justification for replacement.” The results that companies have seen are impressive:
- Compensation spend decrease by 5%
- A reduction in overpayments by 8-10%
- 40% less disputes from sales
- A reduction in shadow accounting by up to 90%
- And up to a 3% increase in revenue per user
With an automated compensation system companies can model the impact changes will have on sales, prior to implementing them. By modeling changes you can ensure that you are properly rewarding the skills and behaviors that will drive higher performance, and ensure sales stays motivated to contribute to company objectives. The automated system also provides the transparency, in real-time, that boosts the credibility of the compensation structure, allowing for sales to spend more time selling and less time worrying about the integrity of their pay.
With 91% of sales professionals being motivated by financial compensation, it’s vital to structure your incentives to drive the behaviors that will lead to overall quota attainment. A multi-tiered compensation model achieves, on average, a 14% higher team attainment of sales quota and 21% more sales reps achieving annual quota. With variable compensation companies can use clear, targeted incentives to improve cross-sell and up-sell percentages and focus on new business versus repeat business.
Now that you have seen the impact an automated, variable compensation solution can have on your bottom line, what’s the next step?
It’s time to find a solution that will support your sales team in reaching their full potential, while increasing the productivity of the entire sales organization. As more and more companies look at ways to improve efficiency, transparency, and credibility, it's becoming more apparent that your compensation solution should be cloud based. A cloud based solution allows for sales reps to see, in real-time, their commissions on any device, so they can spend more time in the field. A SaaS solution allows for a reduction of cost in IT administration by automating the resolution process, decreasing the number of disputes, and reducing the time it takes to make strategic changes to compensation plans.
While establishing incentive compensation is critical to SPM success, we can't forget about the previous three steps. After all, you need to be sure you're hiring the right talent and on-boarding them efficiently, assigning them optimized territories and attainable quotas, and providing them with ongoing training and coaching.