Fixing Your Sales Compensation: What Comes First the Chicken or Egg?

I am often asked to “fix” sales compensation programs. The thought is that a change of quota, leverage or commission percentage will demonstrably improve sales efficacy and revenue. Unfortunately, in most cases, it isn’t that simple. Providing a shinier sales incentive program without addressing sales roles, training, and tools accomplishes very little. To make real changes in your sales team you need to determine what should come first, the chicken or the egg.

To be clear, the egg came first (dinosaurs laid eggs before birds existed). The egg in this case would normally be the structure of the sales team and its approach to closing business. The chicken should be your sale incentive plan. In many young companies, the opposite is true. Sales at early-stage companies are often the result of an organic or even accidental process. This results in success for a small sales team with limited sales volume, but it seldom sustains the growth needed for ultimate success.

When the approach to sales incentives precedes the establishment of a defined sales structure and process, improving sales incentives can be driven by guesses. A compensation professional likes to mix just a little bit of science with their art, and sales incentives without a structure are basically 100% art. So, what do you do when you are asked to help fix these programs?

First, ask to see the organization structure. Take time to learn exactly what each role does, when they do it, and when they interact with or move the sale to another person or department. Ask a million questions and try not to provide too many early opinions. It’s hard to identify the good and bad before the full picture is known.

Next, determine what the job descriptions would be for each job if they had not already been written (and they often aren’t). Don’t start with the title or JD and find matching data. Start with defining how each role differs (they often don’t) and determine if those differences should receive differentiated compensation (they often shouldn’t). Here is where a skilled compensation consulting service may be able to help.

Then, with an understanding of each role and an opinion on where incentives should be similar and different, go back to your sales team and ask more questions. Ask as many “why not” questions as possible. Salespeople are inherent problem solvers. Challenge them to help you determine the right structure, the right incentive focus points, and, ultimately, the right solution. Salespeople also like to be “closed.” They appreciate a strong sales process more than the rest of us, so get them to make your arguments for you.

Finally, with an agreement on how each role should work, you can provide real guidance. You can explain what types and levels of incentives can help keep people focused on their critical metrics. You can use your compensation expertise and math skills to show how your proposed approach can be both lucrative to the individuals and essentially free for the company (great salespeople pay their own wages). Blather on about how you have taken into account TAM, SAM, and SOM in your modeling. Then show them the numbers and close the deal.

There is a ton of technical knowledge required to be great at sales compensation. Most of that technical expertise is important for large sales organizations. For smaller groups, the technical piece is less critical. Focus on what people do and why they do it. Keep the programs as simple as possible and be confident that your best salespeople will always figure out how to work the incentive plan to their favor. Being a strategic sales incentive partner in a small or mid-sized company is mostly about asking the hard questions and letting the sales team take the lead on the solution.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.