5 Signs Your Compensation Plan Needs Revamping

During this time of year, many company / sales leaders consider whether or not to make any changes to the existing compensation plan.  It's an important decision that could impact sales reps' efforts and sales revenue for the coming year.  

In reviewing the way sales reps at your organization get paid, ask yourself if any of these scenarios describe your organization. Might it be time to look at some potential adjustments to the compensation plan?

Few New Accounts

Rather than prospecting for new business, the reps call only on their current accounts, preferring to increase business within those clients. Why shouldn't they? The comp plan pays the same rate of commission on new and renewal business.  

Issue a separate quota and commission for brand new business. Following the "pay for the behavior you'd like to see" school of thought, commission new business at a higher rate. New business will always be more difficult to find and close. Companies grow through a steady flow of new accounts. 

Sales Reps Don't Reach the Top Commission Tier

The company pays 3% on monthly sales $0 to $50,000, 5% on sales $50,001 to $100,000 and 7% on sales above $100,000. No rep has ever sold $100,000. The average rep sells $72,000 a month: $28,000 less than the 7% tier.  

Offer a top tier that's challenging to hit. That's great. If several months go by and no rep reaches that tier - that's OK too. But when no rep ever hits that number, the top tier demotivates the sales staff. Reps look at the goal as unattainable. You might need to hire new reps or set more realistic goals. Whatever the case, this comp plan doesn't drive sales to $100,000+.  

Ignoring the Superstar

Reverse the situation. The company pays 3% on monthly sales $0 to $50,000, 5% on sales $50,001 to $100,000. There is no tier above $100,000. Most reps sell between $85,000 and $95,000 against a goal of $80,000. The superstar of the group routinely sells $110,000 - $130,000.  They receive the same 5% on the additional $10,000 - $30,000.  

Honor and motivate the high-achieving salesperson.  Create a third tier for them. Watching one rep hit that tier proves to others in the group that it can be done, and inspires them to work smarter.

Too Comfortable with Base Salary

During the hiring process, a candidate negotiated a much higher base salary than you wanted to pay.  Motivated to recruit them, you agreed to it.   Eight months later they haven't sold much, and seem content to earn just their base salary. 

Offer a higher training base salary - this helps new reps financially as they build a pipeline. Once the training period ends, reps should be earning more commission or bonus than base salary. This is sales.  They shouldn't be satisfied with just a salary.  If you're in this situation, it's time to get tough and renegotiate their compensation plan.

Reps Don't Understand the Plan

The old adage "a compensation plan should be simple enough to be written on the back of a napkin or explained during a 10 floor elevator ride" still applies. Check in with your reps before the end of the year. Ask them to explain the comp plan to you. If the majority struggle to do so with all or certain parts of it, they find the plan demotivating - count on it. Look for ways to make it more straightforward.

Great compensation plans stretch and motivate the sales force.  Make sure your company has that type of plan in 2015.

If one or more of these describe your situation, call or  email me. I'd be happy to discuss the situation with you.