Sales Compensation: Beware, You Get What You Ask for
Few things are more motivating for quality salespeople than giving qualified reps a seat at the decision-making table. Especially when they’ve only been exposed to the “coin-operated” salesperson mindset, where their role is highlighted when they hit their numbers but otherwise marginalized. Yet when it comes to incentivizing team members, there’s no single thing a founder could do that significantly correlates with success (r2 almost equals 1!) than a compensation plan done well.
The upside is, you’ll get exactly what you make the compensation plan pay for. The downside is, you’re getting exactly what you make the compensation plan pay for. Because execution is everything. If you know (or think you know) what you want to incent the sales rep for — but actually incent them for something else — then they will do that “something else” and not what you thought you were incenting them to do. Here’s how to avoid that…
Make the compensation plan plug-and-play
The first thing that’s going to happen when you put your compensation plans out is that the sales rep will put it into a spreadsheet and calculate exactly how much they’re going to make on their W-2. And they will look at that spreadsheet. Every. Single. Day. If you have sales reps who don’t do this, get new ones.
Is there anything wrong with this? No, far from it. Sales reps actually have the most punishing compensation structure, because if they don’t perform, they don’t eat. It’s one of the most straightforward things about them. Whether they made this initial career choice by accident or not, they have decided to stay and outperform to it since. That’s what drives them.
So my suggestion is to put that spreadsheet together for them. First, they’re going to make it anyway, so you might as well make it easy for them. Second, offering this spreadsheet puts you further down the path of getting exactly what you want, instead of (mis)communicating what you think you want. The alignment this approach offers is unmatched, no matter the size of your sales organization: one person or a 1,000-person army. You will never do an all-hands meeting or a 1:1 in your organization that has this power of alignment and clarity of direction.
Ask for two things, no more
The CEO/leadership team needs to make up its mind about what it is they want most because they can’t have it all. This is really key and can’t be ignored. It’s also very counterintuitive for many founders since it’s the opposite of the entrepreneurial mindset, where you believe everything is an AND not an OR.
But in this case you really have to decide. And you have to make sure the things you are asking for are quantified in clear math, with clear segments of increasing pay off at higher performance levels. Whether you’re looking for 1) net new sales, 2) bigger deal size, 3) deals with new products, 4) renewals of current products, or even 5) higher customer satisfaction, you will maybe get two of those things — for example, 1 and 2 or 1 and 3 — but not all of those things.
The minute you start asking for three things, you are risking diluting the first two things you asked for. And if you add a fourth thing, well, then you’ll (definitely, not maybe!) get nothing. This is important because many CEO, sales VPs, and other HR/finance/operating groups end up making the one thing they want the sales force to do too complicated to understand. Worse, they sit in meeting rooms and hide from the world to come up with plans that make no sense to anyone. If you are a growing business, you can’t afford to make that mistake.
So if you get that sinking feeling at any point during the compensation planning process that this is too complicated, then it was already way too complicated and disincentivizing much earlier. Because you and your finance team have a much higher threshold for things that are complicated and unusable than the people who sell for you every day.
Avoid this deadly sin
To illustrate how badly some misinterpret the meaning of sales compensation, let me tell you about the CEO who becomes jealous of his own people. One day a CEO was reviewing what the compensation plan that he created was paying out. He discovered that some individual contributors were making 2-3X what he was making. Surely this was way too much; no one intended for the sales rep to make that much money, not even the rep when they signed up, right?
So the CEO and VP of Sales decided to change it. Big mistake. I’m just going to come right out and say it: Never, ever change your mind on a comp plan you’ve already put forth — for example, by taking commissions back in the middle of the year because you suddenly realize how rich you’re making your reps relative to others in the company.
You cannot do this. Not only will you obviously, immediately, lose your best rep (and have a lawsuit on your ass, one you will definitely lose) — you will also lose your next top-ten sales reps. And the rest will not trust you any more, so you might as well have lost them, too. No amount of incentive compensation saved will make up for that loss in reputation and business continuity.
Yes, this really does happen. Sometimes it’s a scenario like the above where a power play is involved; other times it’s a case where the exec hears what the total W2 annual compensation outcomes were and thinks he or she is making things fair. Either way, it’s wrong to go back on your word. It’s far better to think through all the scenarios before you launch the compensation plan. If you need to see W2’s as examples during that planning, then ask Sales Ops or Finance for those. But it’s on you if you allowed reps to make a big number, they killed it, and then you retracted.
I’d even argue that you should be happy your reps are making more than you, because it means more money for the entire company — for you, for investors, for everybody. The first time I had a sales rep making a $1M W2, I remember the rep’s name, face, body language, and of course, the deals closed. We were all so excited. And because we did the compensation plan right, the board andCFO were equally excited. It was very profitable for us all.
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It never stopped paying back for me that I made sales and sales reps an absolute priority from the beginning of my company’s life. In fact, sales played a key role in getting some of the most important companies today to success.
You want hungry sales reps. You want to hire them hungry, and you want to support them in becoming even hungrier.
Salespeople are simply not willing to let themselves be controlled by a bonus randomly assessed by a manager. They want to be assessed by math. They want to be competitive. They want to be compared to their peers. They want to win, and bask in it. It’s what you’re paying for, and it doesn’t make them bad people. It may make them different than some of you, but it’s a good different — one that can save a company. Being inclusive of the sales mindset can set your company on a legendary trajectory.
This article originally appeared in Forbes.
