by John Ristuccia, vice president, Professional Services, Optymyze
An incentive compensation plan, in which salespeople are compensated based on their ability to meet established performance goals, is key to building an engaged sales force aligned with the overall goals of the organization. Done well, these plans are highly effective, in terms of driving positive selling behaviors as well as being a critical differentiator in attracting top sales talent and retaining top performers.
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Overall, incentive compensation plans are often an organization’s most powerful tool in terms of influencing sales behaviors and improving sales performance. Yet, in today’s business environment, in which rapid change is the only constant, businesses must ensure that their plans can be adjusted easily to keep up with unexpected changes in the organization, overall market, and competitive landscape.
Agile sales organizations understand that they can create significant advantage when they can rapidly design and roll out adjustments to their incentive compensation plans in response to competitive threats, new products, or market changes. What’s less apparent are the best practices for deploying new plans and processes on an ongoing basis.
As any change to how salespeople are compensated can be met with resistance and uncertainty from the sales team, it is critical that the business understand how to keep salespeople engaged and performing at their best.
Step 1: Design a future-oriented process for change
Key to making changes to the incentive compensation plan successfully is to anticipate the kinds of adjustments that may need to be made in the future and design processes that can be adapted. For instance, it’s a safe bet that incentive compensation plans will change, either moderately or significantly, with the annual planning cycle. They can also change throughout the year if the plan isn’t meeting business goals or driving the desired behaviors among the sales team.
As part of the incentive compensation plan design process, sales leaders should examine a range of “what-if” questions to address a variety of scenarios. This can include identifying the kinds of plan rules that lend themselves to frequent exceptions, whether the processes being designed can handle those exceptions, any new rules that may be tentative and subject to change, any alternate rules if a current rule or measure fails, and changes to other processes and systems that can impact compensation.
Identifying, addressing, and planning for changes to the incentive plan will help set the sales organization up for success when changes need to be implemented.
Step 2: Create awareness of change throughout the organization
Although changes to incentive compensation plans are expected, organizations typically face significant challenges when it’s time to implement them. A comprehensive change management process is critical, including thorough checklists and master plans for making changes, published timelines for data processing and workflow procedures, and a documented escalation plan for elevating issues to management.
Just as important is managing organizational expectations about the kinds of changes that can be made, and individual salesperson expectations from field sales management. Whether a change is something simple, like recrediting a transaction, or more complex structural changes in data or systems, planning for a wide range of changes—and knowing how to communicate these updates to the sales team—is critical.
Step 3: Plan in advance
When calculating and communicating incentive compensation results, organizations must be prepared for both known and unknown issues that can cause delays or errors. One such instance that can occur is that data from prior periods is processed along with the current pay period. Should this happen, sales crediting can quickly become much more complicated and lead to confusion over which transactions should be credited for which period.
Other possible issues include late data feeds from necessary data sources, additional batches of manual data, or demand for additional processing cycles. However, with proper preparations—including adequate planning, data validation, and result checking—such issues can be identified, discussed, and resolved prior to paying salespeople, ensuring those issues don’t become larger problems.
Step 4: Parameterize the incentive compensation management system
Adaptability is a key requirement of any compensation management system and process; to achieve this, the up-front design and redesign of processes to eliminate hardcoded, inflexible programs and manual, labor-intensive processes is crucial. This can be accomplished by analyzing corporate incentive compensation plans for structurally similar rules and determine how to use parameters to simplify processes and eliminate hardcoding.
Parameters can also be used to determine how data on certain aspects of each salesperson, sales team, and other sales entities can be used to further eliminate hardcoded rules.
Step 5: Automate key processes
Incentive compensation plans are typically touched by many systems and processes, often leaving organizations with a patchwork of manual, labor-intensive processes that can increase the risk of delays, errors, and frustration among the sales and sales operations teams. But rather than relying on compensation analysts to spend days sifting through reports to find errors, developing automated processes will help to identify and diagnose problems quickly.
And, as more processes are automated, the analyst’s role shifts from one of maintaining the system to being a proactive business partner who can spend time on value add activities like performance analytics that give the organization greater ability to proactively identify and adapt to unexpected changes.
Given the importance of a company’s sales incentive compensation plan, organizations must have a solid strategy for adapting these plans when business conditions, competitive pressures, and other planned or unforeseen circumstances call for change. If not, the company may face a number of impacts, from higher administrative costs and misaligned behaviors to lost revenue opportunities and increased sales force turnover.
However, by understanding how to manage change and keeping the sales team engaged and informed, companies can ensure a successful approach when they need to adjust their incentive compensation plans.
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John Ristuccia is vice president, Professional Services for Optymyze. In this role, he leverages more than 17 years of experience helping businesses transform their sales processes and improve operational efficiency and sales effectiveness. He currently helps clients in a variety of ways, from planning and strategy through solution deployment to ongoing program and relationship management. In addition to his professional services expertise, he is experienced in software product development, marketing and business development.