Compensate to Motivate
By Lee B. Salz
Channeling the energy of a sales team can be challenging. How you
compensate them determines where they invest their time and the
results you get.
speak to business executives, one of the challenges I often hear is
that their sales team is not doing the things they feel are most
critical to the success of the company. I then ask to see their
compensation plan. After a thorough read, I share my impression of
the message of the compensation plan and ask if this is their
intention. That's when things get scary! They look at me blankly and
say, "No, our intention is for our sales people to…" For them, the
disconnect has been exposed.
many forget is that the blessing of sales is that a compensation
plan doubles as a job description. However, that blessing is also a
curse as a compensation plan doubles as a job description. As one
executive shared after going through the aforementioned exercise,
"We want our sales people to focus on selling our new product to our
existing clients. Yet, we are compensating the sales people in a way
that they are better off pursuing new clients." He got it!
incongruence of sales compensation is one of the biggest disconnects
in companies. Executives sit in a board room with strategic plans of
grandeur, but the plan collapses when they don't address the
compensation for the sales troops. It is a very simple equation.
Sales people invest their time on activities that drive their
compensation. Plain and simple. The thought that sales people will
actively and consistently perform activities that are not in their
best financial interests is naïve.
complicating matters, there are instances where sales people are
compensated for delivering certain results while their managers are
compensated on a different set of results. Thus, the sales managers
are driving their team consistently with their compensation message,
but inconsistently with their sales team members. It creates the
visual of the sales manager pushing a boulder up a hill trying to
get their team to focus on activities that contradict their income.
Best of luck!
structuring sales compensation plans, a company should strongly
consider the goals for the company. Working backwards, the goals for
the company drive the structure of the sales compensation plan.
Thus, they should be directly aligned. If the company's goal is to
gain adoption of a new product in the marketplace, the plan should
reward sales people for accomplishing this feat. If the goal is to
increase revenue with their current clientele, the plan should
reward for that. Anyone should be able to read the plan and derive
the intended message.
second consideration, when structuring sales compensation plans, is
that sales managers and sales people should have alignment with
their respective results. If one is compensated for adding new
clients and the other for selling a new product to existing clients,
and it does matter which is compensated for which, the incongruence
causes a paralysis of performance.
this more daunting is that in complex sales environments, those that
have protracted buying cycles, the standard salary and commission
model does not create enough of a framework to ensure that the sales
team performs the right activities every day. How do you structure
the plan so that the team is motivated to do the right things every
hour of every day?
Employers also face a challenge of hiring sales people who are
concerned about the length of time of the buying cycle in contrast
to their earnings. The standard solution is to bridge the gap with a
draw. As you probably know, there are two types of draws. There is
the recoverable draw which is, in essence, a loan against the sales
person's future commissions. Then, there is the other, the
non-recoverable draw which is money, free and clear, to the sales
person for some period of time. Nothing good comes out of either of
these. The recoverable draw, almost always, puts the sales person in
a financial hole. They wake up each morning knowing they owe the
company money. No one enjoys the feeling of debt. The
non-recoverable draw, often times, creates an earnings cliff. Let's
say that the draw is for three months at $2,000 per month. In month
four, the sales person probably experiences a significant fall-off
in their earnings. The end result is relationship damage between the
sales person and the company and a poor corporate investment. How do
you structure the sales compensation plan to bridge the earnings gap
when recruiting new sales people?
challenge of motivating sales people and bridging the sales earnings
gap can be solved with a creative compensation approach. In the
1980s and 1990s, the big buzz term was MBO (Management by
Objective). Business people were provided with a series of
objectives, and following a performance review, were compensated for
achievement of such. What if the MBO concept was applied to sales
compensation? What if you created a Sales Behavioral Objective or
are reading this and think that I've just created additional sales
cost, think again. I'm proposing a reallocation of the dollars paid
to your sales team. A percentage of the dollars normally budgeted
for commissions would be allocated for an SBO bonus.
this. A company has a typical buying process with its clientele that
is six months long. They pay their sales people a base salary of
$60,000. At 100% of plan, the sales person earns $90,000 or $30,000
over their base salary. However, no commissions are earned in their
first six months of employment due to the buying cycle. The company,
as a means of managing sales behaviors and attracting strong sales
talent, budgets $15,000 of the $30,000 of commissions for the SBO
bonus. The sales person is then eligible to earn a $3,500 bonus each
quarter in year one.
beginning of each quarter, the sales person has a formal review
where the results of the prior quarter are shared and the mission
for the second is presented. The SBO changes from quarter to quarter
based on the tenure of the sales person and the needs of the
business. The SBO is also not a "gimme." 100% accomplishment should
be a stretch goal, but achievable for the sales person.
first quarter, the overall mission is getting the sales person
assimilated into the company's environment. The measurements of
success at the end of the quarter are: a business/territory plan,
the ability for the sales person to call on prospects, and knowledge
of the products. As measurement of achievement, the company provides
a written test on product knowledge, a scored, mock sales call, a
scored, mock, sales presentation, and review of their
business/territory plan. Based on the sales person's
accomplishments, they will receive a percentage of the $3,500 up to
future quarters, a points system is put in place, making the SBO
entirely objective, tied to performing the activities deemed
critical for the success of the business. In each quarter, the goal
is for the sales person to achieve 100 points. The main objective in
the second quarter for this company is to have face-to-face meetings
with qualified prospects. They are looking for their sales person to
have twenty face-to-face meetings in the quarter as a way to jump
start their sales pipeline. Thus, the SBO compensates five points
for each meeting held. At the end of the quarter, whatever
percentage the sales person delivers of the 100 points, with a
minimum achievement of 75%, is paid as a bonus. This includes those
who over perform. Why penalize them for doing more of the right
things? What about quality? How do you know they are doing the right
things in the prospect meeting? Hopefully, you measured their
proficiency in doing those things in the first quarter.
program, in future quarters, is designed by identifying key,
measurable sales activities aligned with the needs of the business.
Place weighting on the activities commensurate with your
expectations of the sales person.
you are probably thinking, "No way, I pay for results!" Well,
results are a function of doing the right things each and every day.
Results are not miraculous. They are formulaic. The reality is that
you have skin in the game with the SBO. As a business executive, you
and your team are tasked with determining what it takes for a sales
person to generate the results you desire. If you have done your job
of identifying the success metrics and the sales person achieves
those, the results take care of themselves. The SBO is not just for
year one since the challenge of managing sales behaviors is
perpetual. One important key is to budget enough dollars for the SBO
bonus that it gets the attention of the sales people, but not so
high that it overshadows commissions.
bottom line is that the SBO program gives you the tool kit to
channel the energy of the sales team toward achieving that goal. It
also provides you with a mechanism to attract sales talent to your
company where, right on day one, they need to perform to earn
dollars over their salary. One other benefit of this program for
those companies with lengthy buying processes, the SBO provides you
with a way to assess the sales person's performance in a way that
you can identify, more quickly, those who will not be successful in
thing is for sure, the executive team of the company in the story
knows that if they paid a sales person $15,000 SBO bonus in year
one, year two and beyond are going to be stellar.
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