Growing a business comes with challenges. These challenges are never static, they change and evolve as your organisation increases in size. This applies to your sales compensation plans as well. A flat commission plan with a threshold of 50% of quota achievement works for a small organisation with do-everything account executives covering a single territory.
However, once you have sales development representatives, account executives, account managers, and customer success managers with different ramp-up mechanisms, deferred compensation triggers, product-specific accelerators, and shared quotas that are split over different territories, it's more than likely you’ll need to make some adjustments to your compensation plans.
If you’re managing sales compensation, you’re already more than aware of the challenges associated with adapting your compensation plans. We all want to preserve your ability to be creative with your plans while cutting out as much tedious admin work as possible. The goal of this article is to provide you with some practical thoughts on how to support you during your company’s growth journey, regardless of which stage you find yourself in right now.
When companies start, sales compensation is often quick and dirty. A simple Excel spreadsheet to get started, an update here and there, and make some new spreadsheets as you add more roles. This can work well for a long time! However, many businesses get to the stage where it starts to become a pain point rather than a timesaver.
Once you begin to scale up, Excel can become the bane of sales compensation leaders’ existence. You run into governance issues, there are cost control requirements, and you have to gather precise data from multiple complex sources to run calculations. And those are only just a few of the issues.
The most clear challenge is managing the newfound complexity within the organisation. And that complexity takes many forms.
Governance is one of the most politically charged areas. Who is responsible for what in the sales compensation process? Sales compensation and reward leaders often find themselves in the middle, balancing the competing needs and wants of sales, operations, and finance.
There’s also the issue of data. As more and more systems are added to manage and support the various team members, gathering and synchronising all that disparate data is no easy task. This is especially true when these platforms aren’t integrated (which is often the case).
Last but not least, there’s sales team complexity. Since your team is growing rapidly, you can find sales roles vacant, especially senior-level ones. This can lead to some employees taking temporary leadership positions while others are asked to take on the duties of multiple roles during transition periods. On top of all that, your organisation may have moved from a single to a multi-territory, bringing territory-specific quotas, thresholds, accelerators, and SPIFs to the fold. This ambiguity leads to “soft tracking” where metrics and KPIs become blurred with people taking on responsibilities of multiple roles.
You’re going to have team members who have joined the company at different stages of its growth. It’s more than possible that you even have some that have been there since day 1. Ensuring your sales team is fairly rewarded (we’ve created a tool to help you determine that) while balancing past loyalty can become complicated.
While there’s always a mix of the two, some organisations emphasise procedural justice, positioning themselves as neutral, trustworthy parties who listen and respect the feedback of their team members while reviewing performance to determine the proper reward. Others put more attention on distributive justice. This approach focuses on distributing compensation fairly across the team and is more focused on eligibility rules, segmentation, and equity.
The key difference between the two is that procedural justice gives team members a voice but doesn’t necessarily mean that everyone will be compensated equally. There is room for longer-tenured salespeople to receive different compensation than newer hires based on pre-existing plans and policies.
As most companies grow, the roles in the sales team get more specialised. Company leadership needs to decide which roles to introduce, the responsibilities to reallocate to them, and when to do it. From job descriptions to role specifications, responsibilities, KPIs, and targets, a full set of internal and external documentation needs to be created for each new sales role.
However, the reality is that most organisations dive into growth feet first. When there’s an opportunity for rapid growth, the rush to seize it often becomes the sole focus. As a result, there are grey areas and a lack of documentation and process which makes setting quotas, thresholds, and more a huge challenge.
Ultimately, it often falls on compensation professionals to try to rectify the situation later on. For those managing the compensation plans, it’s a delicate exercise. It means redesigning and introducing completely new plans to replace ad-hoc stand-ins and setting targets with minimal internal historical data. You also need to calculate competitive pay mixes for recruitment purposes while not being sure those new recruits can fully achieve the promised variable, forcing some level of opacity with newly recruited individuals.
Companies’ sales goals evolve. As new markets are opened and new products are introduced, the expectations for the sales teams change, sometimes dramatically. Sales compensation plans need to adapt to business needs and sales objectives.
That said, there’s always a challenge synching up shifts in business directions with target decision-making. Then, you also need to ensure that the sales rewards are landing on your team’s paycheques in a timely manner. We all know the importance of rewarding sales efforts quickly to keep the sales team motivated. It’s plenty of moving pieces that need to be kept in sync.
While there are plenty of challenges when it comes to scaling a business and its compensation plans. While the process is never straightforward, these 6 steps can act as a high-level foundation for scaling them successfully.
This discussion often takes place between the board of directors, CEO, CFO, sales leader, operations leader, and other senior executives. Unfortunately, sales compensation and rewards leaders are often excluded from this key step in the process. It is nonetheless a critical one. It’s these business goals that define the sales focus and objectives for the coming period.
The next step is to define and agree on the sales roles that will be needed to meet the sales objectives. This includes mapping the existing team, reviewing their capacity to meet expectations and identifying potential recruitment needs. Again, this is a process from which the compensation or rewards manager is often absent.
It’s often at this point that the compensation or rewards leader becomes involved. Based on the sales objectives and competitive environment, it’s up to them to set the target incentives and pay mixes for the various sales team members.
This is particularly challenging when introducing roles in the sales team. With no reliable historical data available, compensation leaders should reference peer group benchmarks (luckily, we have some compensation benchmarks for you).
This process has a political element as well. Compensation leaders often find themselves in between sales, finance, and operations, each with their own needs. It can take time to find a middle ground. In some situations, it’s pragmatic to involve the CEO to have them decide and end what would be an otherwise endless debate.
With the target incentives and pay mixes finalised, the next step is to define the performance metrics and incentive scheme features. Set quotas and apply plan features like thresholds, caps, decelerators, accelerators, ramp-ups, and more for each position. Depending on how many roles there are in your sales team, this can involve creating several unique compensation plans.
Deciding the payout frequency is a multi-disciplinary process. Nuanced considerations must be applied between “how often I want to stimulate a particular behaviour” and “how often people desire to be paid for selling products and services that have different sales cycles.”
It’s often heavily influenced by past practices and can be highly country-dependent.
For example, changing to annual payouts for sales development representatives after paying out monthly for the past 5 years can be a shock to your sales team’s system. Likewise, moving from an annual payout to a quarterly payout can be equally stressful for your account executives.
If you need to make significant changes to the payout frequency, strong communication and transition periods can help make the changeover go more smoothly.
After settling on the different targets and plan elements, it’s time to implement. As we all know, good communication goes a long way in making sure compensation plans are well received. Take the time to explain any changes to your sales team and show them how they affect their potential earnings. It’s also a good idea to get internal employee relation organisations like work councils or employee representation forums onboard as well.
Managing sales compensation plans for a growing team is much like renovating a house's foundations while it's still standing. As your organisation grows and evolves, adapting and implementing becomes increasingly challenging. From dealing with governance issues and data synchronisation to assuring fairness and managing role specialisation, there are a multitude of hurdles to overcome.
To successfully navigate these challenges, you need to take a holistic, pragmatic, and patient approach. Using business goals as the North Star metric will help you define target incentives and pay mix, specify performance metrics and incentive plans, and decide on payout frequencies.
Nonetheless, you need to remain aware of the changing landscape. Engage in discussions with rewards and compensation peers and recognise that future changes will inevitably necessitate adjustments.
One such discussion you may find yourself having is on incentive compensation management software. Investing in appropriate software solutions now doesn’t just help you streamline processes. It also makes it easier to evolve them alongside your organisation and gives you a chance to speak to other sales compensation professionals about how to get the most out of it. Some tools can make the switch happen quickly. For example, Amalia.io is capable of turning around an enterprise-ready solution in just weeks.
With the right tools and mix of adaptability and foresight, you’ll be well-equipped to tackle the inevitable challenges of a growing organisation and ensure that your compensation plans continue to motivate and reward sales teams effectively.
Discover how sales commission agreements and target letters provide clear expectations about their performance and transparency around how variable compensation is calculated.
SPIFs can be tough to design and get the right results from, especially when the level of plan governance isn’t where you’d like it to be. We’re here to give you an easy-to-follow checklist of how to create an impactful, well-governed SPIF that will give you and your sales director the results you’re looking for.