Compensation Complexity Hinders Sales July 22, 2008 Companies find that increased complexity in their compensation plans is hindering their selling potential
By Avi Nimmer
Struggling businesses are quick to point fingers at the static economy as the source of their woes. And probably rightfully so…to a certain extent. There is no doubt that the receding market is playing a large role in the difficulties and demises of many companies. But is the economy turning into the ultimate scapegoat?
According to a recent survey of 185 sales force leaders conducted by Deloitte and Oracle, declines in sales effectiveness can be attributed to more than just the waning economy. On the surface, it is easy to place blame on the receding market—40% of sales forces did not meet last year's sales goals and less than half of respondents (49%) reported being at least "satisfied" with sales performances this year (down from 56% in 2006).
And if a poor economy wasn't bad enough for those sales professionals who base their success on commissions, the state of companies' compensation plans are also taking a turn for the worse: Only 41% of sales leaders were satisfied with their current compensation plans (down from 59% two years prior), and only 46% believed their plans were promoting the correct behaviors for sales success.
"It's a challenging economic market and sales force effectiveness can make or break a company's financial results," concedes Michael Herman, national leader for Deloitte's Sales Force Effectiveness service offering, in the survey's press release. "Companies can't afford to have a sub par sales force and, while we believe sales compensation plans are a key driver to boosting overall sales performance, plans are sinking into a deeper state of complexity."
Complexity, Complexity, Complexity
Nearly half (46%) of sales force leaders believe their sales compensation programs have become more complex since 2006. Among the increasingly complex issues are more sales representatives in more countries, "increased team selling, more complicated quotas and territory assignments and the demand for more precise metrics," as reported in the study.
While many of these issues are important for achieving sales success, the purpose of compensation plans is to promote and alleviate the difficulties associated with sales; not create barriers. "There has to be an appropriate distribution according to performance," says Herman. "The compensation plan has to be a pay-for-performance vehicle. There have to be a certain number of people below expectations, and a certain number above."
But there is a light at the end of the long tunnel: The survey points out that many companies are making strides toward more effective compensation plans. Among the productive steps forward are companies using three or fewer measures of performance (73%), conducting a plan review at least annually (77%) and changing metrics less often than before (58%).
"At the end of the day, a good compensation plan ensures that dollars are going to the right people and communicates to lower performers that this may not be the right line of work for you," says Herman.
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