Comp Plans Drive Behaviour
Comp plans drive behaviour. Yet, how many companies and sales reps don’t understand this simple fact. Company’s change comp plans and can’t understand why sales people leave and/or why they are getting the results they are from the plan. Sales reps struggle with their comp plan or don’t understand the plan and therefore are unable to use the plan to their advantage.
What behaviour are you driving?
In my 20-plus years of being a rep I never had a comp plan that increased my commissions and lowered my quota. And each year I received a new and different comp plan and each year a new behaviour was created for the sales team. It was interesting to watch. As a sales executive we were always trying to maximize the ability of the sales team to make money and keep the plan within the cost of sales percentages we had to work within. And there were times when we didn’t get it right.
I am amazed at business owners and corporate sales managers that don’t understand what happens with their comp plans. As an owner if you feel your sales team is not worth the commissions you pay and that they don’t work hard enough and so you cut the comp plan – be prepared for less work and performance. I had a company who decided that after the first quarter the plan was too rich and they dropped the commission levels and made it retroactive to the beginning of the year! I also worked for Linotype who had created the best comp plan I ever worked under. It was the year I made the most money.
What behaviour do you want to create?
What is it that you want your team to sell? Do you need revenue? Do you need margin? Do you need new products sold? Do you need a blend of products sold? So why not just tell the sales team what to do? Sales people are simple beings. They will follow the path of least resistance. However, if you tell them what you want, you create a comp plan that drives that behaviour and then you hold them accountable – then you will get the results you desire.
In 2000 the company I was working for decided to cap the sales reps income. It was felt the cap was more than fair and today I might say that it was. However the resulting behaviour was predictable. The end of January at the sales kickoff meeting, a rep got off the plane and had a purchase order in his briefcase that with that one order, capped his income. Once he signed off his comp plan, he told management he would see them in 2001. He managed that account and more or less took the year off. Many of the top reps left the organization. In the last quarter, reps began holding onto orders to roll into 2001, as their income was capped. That kind of behaviour plays havoc with plans for administration and production staff, inventory planning and business planning.
The Linotype plan was a low base salary, a generous commission and a bonus for driving a mix of products and services. I was able to take advantage of all of those factors and was able to take full advantage of the payouts.
Remember – Comp plans drive behaviour.
What works for you?
If you put a sales rep on straight commission, do not expect those reps to participate in anything that takes them away from making money (meetings, teamwork, administration or anything else that wastes their time). If you put your sales team on straight salary they will show up each Monday and ask you what you want them to do this week.
That means you need to craft a comp plan that drives the behaviour that gets you the business results you need and drives the appropriate level of revenue, margin and product or service mix. And yes, it takes work and thought to make that happen. Driving revenue only can cause reps to discount every deal. Driving margin only will make you more profitable, however it will still cause discounting. Now cut commissions for discounting or add a bonus for maintaining margin and now you will get profitable revenue.
Sayers Says...
What is your comp plan? Do you understand your comp plan? What behaviour does your comp plan create? What needs to change in your comp plan? Does your comp plan behaviour get you to your business goals for this year?
