When talking with salesmen within these industries we found the following complaints/issues prevailed:
Quotas set unrealistically high
• Their sales territory was not rich enough in value opportunity
• The choice territory accounts were considered “house accounts” and, therefore off limits for the salesman
• The salary/commission ratio was out of balance
• The incentive plan was ill-conceived in first place
• Company like to play around with the plan which made objectives change too frequently
Many companies, on the other hand, look for more effective means to wringing out higher profits per account by expending as little in sales compensation as possible in the process and blanketing the sales persons with the same plan in a “one-size-fits-all” approach. For instance, placing caps on incentives across-the-board.It has been proven that the “capping” of incentives decrease high-performing sales persons’ motivation and, therefore, their overall effort. Similarly, the practice of “ratcheting” quotas (raising the annual quota if performance in the previous year was exceeded) may hurt long-term results.
Historical traditional sales compensation systems, in general terms, have been using two extremes . . . and then modifications of both: Salary only and commission only: The faults with these two systems are these:
• Salary only approach demands extremely close management supervision and control to assure the company is getting full effort and efficiencies from their salaried sales persons.
• Commission only approach provides sales persons driven by short term rewards what they want if they accomplish their territorial objectives and, provides principle company management a constant short term measurement devise... therefore... control.
Selection of a sales incentive plan is influenced by several elements of importance . . . one very clearly is sales cycle. If a company’s sales cycles are highly uncertain the more a sales person’s pay should be based on a fixed salary. Conversely, the less uncertain the sales cycle, the more pay should depend on commission. Additionally, experience has taught us the following about incentifying sales persons: A formula of straight-line commissions (salespersons earn the same commission rate no matter how much they sell) is the optimal way to pay sales representatives.
Experience says complications arise when adding in...
• Lots of bonuses
• Variations in commission structure
• Time period goal achievement
Some companies in our industry customize incentives to match personalities. Customizing the incentive system to each sales individual’s personality and perceived abilities is NOT the way to go. Incentive experimentation is ok if it’s done in a confined activity space with several affected management groups as buy-in observers. This experiment should be basically “offline” to avoid any hint of upsetting the sales force.
Advice in a nutshell:
1. Remove caps on commissions... the sky’s the limit
2. Make certain sales managers are careful in setting and readjusting quotas
3. Make sure sales managers are NOT over complicating the system but, measuring their personnel in terms of... keeping them all motivated and engaged
• High Performers
• Average Performers
• Low Performers