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November 2016

Culture & Communication Are Critical for Sales Compensation Policies

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The economic environment is driving sales compensation plans toward higher payouts for overachievers, as well as increasing the role of incentives in the pay mix, according to a new study. "Sales Compensation Programs and Practices," a study conducted by WorldatWork, a nonprofit human resources association and leading compensation authority and underwritten by OpenSymmetry, an independent consulting firm, surveyed several hundred WorldatWork members to gather trends in sales compensation programs and practices.

The survey dug into the critical factors that contributed to successful and unsuccessful launches of sales compensation plans. According to half of the respondents, the composition and involvement of the design team (50 percent) and gaining buy-in from sales managers through effective training and communication (49 percent) were critical to achieving success. When that buy-in from sales managers or sales reps was ineffective through poor communication and training, the survey showed mirror levels of not achieving success (47 percent and 53 percent, respectively).

"The news these days is highlighting the importance of communicating clear expectations and having a strong culture of accountability in sales compensation, and with that, goals need to be set at a level where they're challenging but attainable," said Kerry Chou, CCP, senior practice leader at WorldatWork. "Effective communication is at the core of the top four critical success factors in this survey, whether through selecting the appropriate mix of professionals for the design team who understand the expectations and culture of accountability, having an effective goal-setting process, getting that buy-in from management or providing consistent messaging from management. It shouldn't surprise us that when a sales compensation plan has an unsuccessful launch or execution, some of those same communication factors are revealed as lacking in this survey."

The survey revealed that 71 percent of responding organizations use three or fewer performance measures in their sales compensation plans, with measures like total revenue and key sales objectives or milestones showing across-the-board importance for all of the salesforce.

David Blume, senior vice president of sales and marketing at OpenSymmetry, said "As best-in-class sales teams push for more aggressive goal-setting and higher rewards, simplicity in the sales plan design is key to tracking performance and shaping sales behavior in a more focused and impactful way. Highly complex sales compensation plans with too many performance measures can demotivate sales teams and contribute to rainmakers scattering their efforts amongst too many targets or just jumping ship, period. Furthermore, having a few key performance measures allows sales compensation plans to remain agile enough to change quickly in response to shifting corporate goals, industry tide and regulations."

Other key findings from the study include:

  • 63 percent of organizations have documented policy guidelines that govern the process, manner and frequency against which sales compensation plans are reviewed.
  • 90 percent of organizations have a formal plan that details the governing terms and conditions for sales plans.
  • Ultimate approval to authorize change to the sales compensation plan lies with the top sales executive in 28 percent of respondents and the corporate president or CEO in 25 percent.