This post originally appeared on January 15 in the Sales Bloggers Union, my colleagues and I were writing about quotas and commission plans. For other posts on this topic, go to Sales Bloggers Union.
My colleagues have been quite articulate in talking about a lot of the fundamentals in developing commission and compensation plans. The plan needs to reinforce your strategies and priorities, the behaviors you expect from sales people, and other things.
I have been the beneficiary and victim of bad incentive plans, and I have victimized sales people with bad incentive plans. I thought I would tell a story about victimizing a team of sales professionals, creating chaos and disorder through a bad plan.
I was running the sales organization for a large high tech company. We had very technical products, most of our sales people were electrical engineers and, to be honest, we were all a little nerdy. I assembled a team of sales managers, a few sales people, my controller and a consultant, to design the incentive program.
I set some guidelines, I wanted people to be incented to a fast start for the year, I wanted to have balanced performance across several categories of products, I wanted to incent over quota accelerators, and a few other things. They met for a few weeks, designed a program, simulated it to make sure it wouldn’t violate our budget, and presented the final commission plan to me. Here it is:
Pretty cool! (Remember we were an engineering oriented company.). I looked at the equation, and gulped a little. Some of it made sense, I saw the Fourier series and started to get a little confused, and I was really concerned about the imaginary numbers (the last set in the equation). But I figured, it’s sales, there has to be an imaginary number or two in the calculation.
The team presented it to me, they had a 127 nice PowerPoint charts that showed me they had incorporated all the design parameters we wanted, that it would motivate the performance and behaviors we wanted and reinforced our key strategies for the year. They convinced me it was the right commission plan. I guess I was too embarassed to admit that I really didn’t understand it, so we published it at our sales kickoff meeting. Always the cheerleader, I told them how fantastic it was, I went through the design principles, it only took me 57 charts to explain it. I concluded with the mantra of all sales executives presenting the commission plan: If you hit or exceed your numbers, you’ll make a lot of money! Boy I wish I were on a plan as rich as this! (Isn’t that kind of the obligatory statement we have to make?).
There was a little rumbling and complaining—but isn’t that a sales person’s job, we always have to complain about the new commission plan. They went back to their territories and went on about their jobs. After a few months, I started wondering, why aren’t we seeing the behaviors we wanted. We had wanted a radical shift in what they were doing, but they seemed to be doing the same things they were doing before. What was wrong? Here we were 30% of the year had passed, and we weren’t getting the behaviors and focus we wanted. The overall numbers were OK, but some of the key things we wanted them to be doing weren’t happening.
Well, it doesn’t take a PhD in Math to figure out what was wrong—-well, in hindsight, actually it did! Maybe that was the problem. We had made the commission plan so complex, the sales people didn’t know where they should spend their time. As they saw potential opportunities and tried to make that calculation all of us do (What’s my ROI on investing in this opportunity?), they couldn’t figure it out.
Our error was the plan was way to complicated. It wasn’t clear what they should be doing and where they should be investing their time. They couldn’t look at each deal and say, “Am I doing want management wants me to do? Am I selling what they want me to sell to the right people? Am I investing my time in the right opportunities? Will I get the return on my investment in this opportunity that gets me the commission I want.
Perhaps, this case was extreme, but it’s not unusual. Too often, I see management putting in place plans to do everything–and they end up doing nothing. We have to have absolute clarity about what we want our people to do. We have to know how we want them to behave. We have to translate the few critical things into a commission plan that is easy for them to understand. As they look at an opportunity, they ought to be able to say, investing in this is what my management wants me to do and will get me the commissions I want. People do what we measure them on and what we pay them on. Are we incenting the right behaviors and is it so simple and crystal clear that people can easily execute it?
Write me if you want to know what we did to fix this mess!
Nice post Dave, I can hear those words ‘I wish I was on a plan like this’ ringing in my ears even now. It’s amazing how much damage is wrought by poorly thought out commission plans. Far better to keep it simple, rather than try and make the plan address every eventuality.
Dave: great post on an important topic.
Could a commission plan fit on the back of a business card? One VP I worked with publicly announced that goal. He never achieved it before he retired. Why? I don’t know all the reasons, but sacred legacy compensation plans (Hey–don’t even think about changing the New Account Bonus Structure!), product management goals, changes in executive regime, changes in competitive forces, and yes, egos-of-many-people all played a role in his not fulfilling his admirable goal.
Simplicity is one important ingredient for a successful commission plan. Attainability is another. Successful salespeople take intelligent risks, and over time, it’s easier to assess where the risks are in a commission plan. Some plans might be clear, simple, and unambiguous, but if they’re ridiculously difficult, they’ll frustrate the daylights out of the sales force. (“Oh, and while you’re at it, bring us the broomstick of the wicked witch of the West!”)
If a seemingly-simple plan isn’t getting traction, examine whether anyone has come close to achieving it. A strong motivator is recognizing that others are making the required goals–or at least getting close.
A related blog I wrote on this topic, “Is Sales Necessary, or Necessarily Evil?”
Richard, thanks for the comment! I don’t know why, but we tend to overthink, consequently over complicate these plans. There are several factors that drive this, I think one is managers are not clear about their priorities, the behaviors they want to drive, and what they want sales people to focus on. Instead, they try to cover all bases, creating plans that are meaningless.
Another factor is the “How do we protect ourselves from those greedy, self serving sales people?” This is usually the commission plan with 20 pages of fine print following it. Design the plan, game it to see if it drives the behavior, priorities you want, implement it, move on.
Thanks for contributing to the discussion. Regards, Dave
Andrew, I’m flattered that you have taken the time to comment on my post, thank you! You raise so many great points, things like simplicity and attainability are great points.
You’ve provoked me to get on my soapbox. One of the things that really bothers me is managers who think the only way to drive behavior and results is through the compensation/incentive plan. This results in complex and everchanging plans.
Managers can’t forget there are multiple levers for driving sales performance. One is the compensation/incentive plan, another may be contests, but one of the most critical and under exploited is the performance plan—but then again, managers would have to focus on managing and evaluating performance, God forbid we ask them to do their jobs. Performance management, feedback, coaching and development are critical to maximizing sales productivity. Let’s not forget to take advantage of this.
Thanks for the comment. Loved your article, by the way, you’ve provoked me to look write on the topic in the coming days. Regards, Dave