Top 10 sales compensation challenges
10. Overcomplicating compensation
Ah, yes, the age-old challenge with compensation plans: over-engineering.
Lori Richardson knows sales. Her career in the space began immediately following college, and she hasn’t left since.
Today, you can catch her leading her two businesses — Score More Sales and Women Sales Pros — and coaching Harvard Business School Entrepreneurial MBA students on the fundamentals of professional sales.
Here’s what Lori had to say about avoiding over-complication:
“The more a sales rep makes, the better for the company. Reps are always looking to make the maximum amount of money for the least amount of effort. So keep it simple and it’ll be a win-win for your sales reps and your company.”
Keep it simple and it’ll be a win-win for your sales reps and your company.
9. Using sales compensation as a Band-Aid
“What makes sales compensation hard is that it’s the easiest lever to pull,” said Pablo Dominguez, Operating Partner, Sales, and Customer Success at Insight Partners. “Whether the company isn’t hitting their forecasts, or sales reps are over or underperforming, it’s very easy for a CEO to say ‘change the comp plan.’”
Bigger strategic lifts require more intention. Compensation is the caboose, not the engine.
Strategy is the engine.
Compensation is the caboose, not the engine. Strategy is the engine.
Next time you’re thinking about messing with your comp plan, remember Pablo’s words. Nine times out of 10, compensation is not the problem.
8. A lack of alignment and innovation
Most often with early-stage companies, the CEO delegates the design of compensation plans to the Head of Sales… who plugs in the same compensation plan that worked at their last company.
“It’s the same playbook regardless of context,” said Stage 2 Capital Manager Director Mark Roberge. “It’s extremely rare that the strategic context of the Head of Sales’ last company is the same at the new company.”
So, instead of copying and pasting, Mark suggested having the CEO meet with the C-suite and board to define the top three to five strategic objectives for the next quarter or year.
From there, you can identify which of those priorities sales compensation can reinforce – and those sales coaching, pricing, or proper training can accomplish.
There’s also confusion around who should own compensation.
“In a reasonably sized, mid-market company, RevOps drives it,” Mark said. Then the CFO and Finance team enter to look at it from a financial viability perspective, find loopholes, and determine if the plan is still profitable for the company.
7. Doing it alone
When sales leaders build the comp plan alone, they end up misaligned with the company’s overall goals.
Liz Christo, Partner at Stage 2 Capital, said, “Sales leaders need to start with the core business model. Spend the time to actually dig into the strategy, what needs to be accomplished, and who needs to be involved.”
Learn and collaborate with SalesOps, RevOps, Finance, and even HR when designing a new compensation plan or evaluating an existing one.
6. Two different sides of the coin
Typically, companies want to pay the least amount for the most production. Meanwhile, sales reps want to make the most possible for the least amount of effort.
We know this. But let us not forget that data can’t always explain human behavior.
Kevin ‘KD’ Dorsey, Revenue Leadership Practice Lead for Winning By Design, said “Understand how individuals make decisions. The person element in comp plans is where the struggle lies.”
Find the balance between what the company wants to achieve and what the salespeople want to accomplish.
If your finance team builds a plan out in a spreadsheet, that spreadsheet can easily break the second it lands in the sales reps’ hands.
Instead, KD suggested finding the right balance between what the company wants to achieve and what the salespeople want to accomplish. To do this, talk to your reps. Find out what matters to them, what motivates them, and why they work.
5. Understanding the market
As Avenue Talent Partners Founder and CEO Amy Volas pointed out, “There are many different shades of gray when it comes to sales.”
You have to understand the market and what the job actually entails.
“Most people assume and don’t understand,” Amy said.
For example, if you build a comp plan for an enterprise sales team that expects production out of new reps within the first three months, that’s a huge disconnect since enterprise sales typically take 12 months or more to close.
“Take the time to understand what’s happening operationally on the team and with buyers,” Amy added.
4. Record-breaking churn and OTEs
With the Great Resignation and a 20% rise in on-target earnings (OTE), companies have struggled to retain top talent.
Kevin McKeown, CRO at Beekeeper, said people can’t believe what companies are paying in the market. He experienced this firsthand last year at his previous company when an employee satisfaction survey revealed that compensation and commissions marked the top area of disdain amongst reps.
“Your comp plan is one of the biggest recruiting tools to attract top reps,” said Andrew de Geofroy, SVP, Global Revenue Platform at Gtmhub.
To fix this, companies must come up with compelling — and actually attainable — OTEs. As your baseline, I recommend an attainment goal that includes 80% of your team reaching quota and quotas that are 5x that of the OTE.
3. Providing transparency
I’ll focus on transparency in two ways: how leaders structure sales compensation and how sales reps understand it.
Jared Robin, RevGenius Co-Founder, pointed out that leaders who aren’t clear with what they want risk ambiguity. When asked about changing comp plans, he said, “The [lack of] communication of the changes leaves people in the dust.”
His solution: simple plans and clear communication when goals change.
“Let it be easy to make money. Make it easy to close business,” Jared said.
Secondly, transparency into compensation is key for reps to know how they can hit their OTE and achieve 100% of quota. By unlocking visibility into their commissions, you’re helping your team translate pipeline into potential paychecks. And when that’s clear for the reps, you’ll see reps sell more.
2. Total compensation
Another challenge that Pavilion Founder and CEO Sam Jacobs called out is paying unsustainable commission rates while ignoring the true economics of the business.
“It’s not possible to pay a salesperson 20% of a deal as a base compensation rate,” said Sam. “Revenue is the revenue. It’s supposed to pay for everything.”
To come up with attractive comp offers without paying inflated rates, Sam recommended pushing the total compensation package. Sell reps on your benefits, equity, stipends, privileges, stability, and the mission of the company.
Asher Mathew, VP Go-To-Market at Demandbase, shared a similar experience and has found himself pressing more into total reward conversations with reps, as well.
1. Managing the unknowns and building trust
Lastly, the greatest risk is the unknown, whether that’s relative to the economy, talent, or otherwise.
“Early on in companies, everything is unknown,” said Climate Club Co-Founder Philip Charm, referring to average sales price, quota, attainment, length of sales cycles, and more.
So, rely on your experience, tools, and industry data. Take your best guess, and be ready to adjust as your business grows.
You can also reach out to me, as I’ve reviewed more than 1,000 compensation plans — or add your business variables to one of the most trusted compensation plans in our free modeler.
While I know most people don’t typically consider designing compensation plans “fun,” (though I do!) I hope you find our experts’ advice and resources helpful.
Happy Compensation Planning Season!
Originally posted 2022-10-19 16:43:24.