Sales compensation gone wrong

Sales compensation gone wrong

People think sales compensation is easy, but it's often done wrong. Alan McAnally, president of SalesComp America, highlights the compensation mistakes that actually encourage the best salespeople to leave your company.

October 28, 2011
Professional Development Industry News Sales & Marketing
Is your sales compensation program actually sabotaging your results? It probably is, if it's guilty of the frequently committed faux pas detailed below.
They're from Alan McAnally, sales consultant and president of Andover, Massachusetts-based SalesComp America, in an article on the company's website.

Here are some sales force killers:

Killer #1. Never Involve Your Salespeople in Compensation Design
It's common for people "upstairs" to design programs that are counterproductive. What to do? Ask your sales force what they think of your current policy. You might be surprised, says McAnally. You'll get insight into their morale, motivation, and expectations.

Killer #2. Use the Hiring Letter as a Plan
Too often, companies try to establish their incentives plan with a short sentence in an offer letter such as, "If you sell X amount of our product, you'll get a payment of Y percent of sales." That keeps it quick and simple. But what about these situations, which are going to come up:
  • Late payment or nonpayment by customer (Is there a penalty?)
  • Territory or account assignment changes (They're going to happen.)
  • Windfall sales (What's the definition? Is there a cap?)
  • Unprofitable sales (What's the consequence?)
  • House accounts (Always a challenge.)
  • Split commissions (Needs a very clear definition.)

These situations—and probably others unique to your specific environment—need to be defined as part of the offer of employment, says McAnally. Salespeople just want to know the rules.

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Killer #3. When You Pay, Pay Late
It is not unusual, says McAnally, for incentive checks to be delayed because they are not part of the regular payroll system. It's the financial people, he says, not the sales managers, who cut the checks, and when they get backed up, they allow themselves some slack by being late with incentive payments. Make your financial people treat incentive deadlines as seriously as period closing deadlines.

Killer #4. Leave Out the Supporting Data
In many organizations, says McAnally, incentive checks just appear without supporting data. Especially when the check is lower than the salesperson expected, this creates problems. Always provide the data that show how the amount was calculated. As long as it conforms to the agreement, individuals will accept it.

Killer #5. Constantly Make Changes to the Incentive Plan
Salespeople know that there will be some changes, promotions, and special situations. But if you change the program constantly, they never know what their objectives are. You want them comfortable with the plan's provisions and measurements, says McAnally. By the way, a good plan does not have to change very often, he adds.

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Killer #6. Set Earnings Ceilings Too Low
An excellent way to drive your salespeople to the competition is setting unrealistic ceilings on earning power. Salespeople know that there are likely to be some defined upper limits to their compensation, and rules addressing windfall sales have been long accepted, but be careful. In general, companies are well served when motivated salespeople know they have the opportunity to "earn big for big results."

Don't put the brakes on salesperson enthusiasm and earning power until you have carefully thought out the justifications and ramifications, says McAnally.