With 2018 winding down, it’s the time of year when companies start on their 2019 sales compensation plan. They examine whether their plans are aligned with business goals and staffing, and either make minor updates or perhaps even a wholesale revision. The new sales compensation plan is then rolled out at the beginning of the year and in some cases is left untouched until the end of the year.
Usually this customary annual revision is the extent of compensation planning for most sales organizations; after all, changes to compensation plans with traditional forms of management are highly disruptive to sales teams and should be kept to a minimum. Tinker too much and you run the risk of reps heading for the door. Moreover, compensation plans are highly complex and making changes can be an ordeal.
So ideally, you shouldn’t change your sales compensation plan more than once a year. However, there are situations when you’ll want to make changes beyond the annual update.
When to make a change
There’s substantial risk to the set-it-and forget-it approach to compensation planning and when this approach backfires, many organizations are poorly positioned to react.
What if the plan isn’t working? What if you’re halfway through the year and sales reps aren’t close to making their numbers? What if your expenses exceed your bookings? What if compensation plans are not supporting the strategic sales goals of your organization. You’d want to make some changes before the year is over and it’s too late.
Events can trigger the need for a plan update. For example, if your company is acquired, sales territories and business rules will change, requiring a new plan. Or perhaps your company acquired another firm, adding to the number of products your team needs to sell. You also could roll out a new product that requires a tweak to the comp plan in order to support it.
Use data to make your changes
It’s important to analyze your plan on a regular basis to ensure it’s meeting the company’s strategic goals and driving a healthy return. New technology is crucial for ongoing analysis and review; ideally these are systems that use augmented intelligence to examine plan performance and detect any outliers that are costing the business, but not generating revenue. AI-enabled solutions can provide recommendations for changes that will improve performance and drive better revenue.
Plan for change
The fact is no one knows what the new year will bring, so even if you hope to make no changes you need to ensure you are properly set up to make adjustments as needed. This requires a system that built for agility. Here are some characteristics of an agile system:
- Can change a plan without waiting for an outside vendor or service organization to do it
- Can change a plan without extra cost
- Can model plan changes to see their effect
- Technology that can communicate and get sign off from reps
- A plan that can easily adjust the crediting/payment of commissions
Communication is critical
If you make a change to your sales compensation plan outside the annual update, make sure to communicate the reason for the change clearly to sales reps. They need to understand how the change will result in a positive outcome for them: How they’ll hit quota faster and make more money. Without clear communication, you risk alienating sales reps and hurting team morale.
When changing the plan to support new products, provide training to reps so they can hit the ground running.
Of course, an alternative to changing your comp plan is to roll out a SPIF. This is a good option, especially for short-term objectives, such as pumping up sales of a particular product.
Learn more about effective sales compensation management here.