Most people have their salaries split into fixed, allowance and incentive pay. Still, little do we know how the variable (Incentive/Commission/Performance. Well yeah, there are a million names for this!) based compensation works.
When you get 95% of your variable pay credited, do you know how to get 100%? Or is it accurate? If we get 100%, we are good! If less, we are okayish. If more, it's exciting. This article should help you understand how to take control of your incentive pay, including analyzing your sales history sample to make informed predictions.
There are vital factors in your incentive pay - the number of products you manage, territory, market size, potential to sell more with existing customers, etc. Check with your HR or sales manager if you have the IC plan models and their weightage against targets.
Take product A with a target of 1000 units sold in your territory. It must have a percentage of your bonus if you achieve up to 80% - X amount per unit / 100% - Y amount per unit / more than 100% - Z percentage per unit. Unit-based sales comp is one way to make comp plans. Sometimes it's based on the value sales, not the units sold. If the total value is more than X amount, you get Y amount as your incentive – this can also be percentages.
“Whenever preparing the product incentive plan, my approach is first to set an Objective like which Brand among my portfolio, what's my long term and short term goal and what kind of support I can provide to my sales team to achieve the objective. Once I have my Goal set, I break up that into units considering my Team Strength and Size. Keeping the markup of anywhere between 10-50%, I assign the target HQ / TM wise, looking at the current productivity. In general, if the Brand has multiple SKUs, targets are Value wise, and if in the case with Single SKU and high Value/unit then it is Unit wise.”
- Product Manager at a Life Sciences company
Product teams usually share their IC plans with their respective compensation teams. Suppose someone has this information with them, and their company uses traditional systems or spreadsheets.
In that case, they will do the math themselves, which is why companies get queries on their incentive compensation pay, including OTE compensation. Most companies complain they get thousands of questions every month end - but most of them tend to not look into why it happens. Indirectly, it does mean that they are doing their calculations, in other words, shadow accounting, and wasting their employee's precious time.
You're forcing them to devote too much effort to complete tasks to track their earned income. They spend hours keeping track of their numbers to match the sales numbers companies share with them at the month's end. What happens when the numbers don't match?
They raise a query or complaint on this! (No one likes to complain! It demotivates them more than anything!)
Then the waiting time to resolve this - is unfortunate to see how long it takes for companies to solve these queries. Reps are just done with the company and looking for better opportunities during this waiting period. Some companies even take more than six months to resolve these queries.
How to help prevent this from happening?
If you have a relatively simple product in a well-known industry and a predictable sales cycle, say six weeks long, your comp cycle and evaluation should be monthly. Or, at the worst, quarterly.
Now, let's look at how we can create change
If you use an excellent Incentive Compensation Management tool, half of your problems are solved! Yes, I said half! It's because most IC software cannot do the entire automation required to keep motivating the employees. An exemplary IC tool will get your numbers correctly and integrate with your systems to avoid the manual work entirely.
A ton of data is unused from IC plans, which could be used for forecasting and creating better plans for employees. If your IC system is not intelligent enough to use this data, you are losing the leverage you have for your competitors by giving them your best employees.
So, what Ideal IC system that your organization needs?
It should be capable of at least the following:-
- You should be able to forecast your sales and budget using historical data properly. If you have a great IC tool and a flawed IC Plan, nothing helps! Simulate using historical data and see the results yourself.
- It should have a smooth data flow with your existing systems, both inputs and outputs.
- Sales teams should be able to understand the sales compensation plans and should be able to easily simulate the team incentives so that they can plan their sales accordingly.
- Your compensation plan today should be capable of a smooth transition into the comp plan you want in the future.
- Reps should get information or tips on where they are lacking and how to improve their sales numbers.
- Reports and transactions should be compliant and audit-ready.
When Kennect built the ICM solution, it was built in such a way that it promotes the sales performance of a rep, even if it's a simple and easy-to-use ICM. When customers explained that they had the most complex IC plan, it was surprisingly more straightforward for us to configure it in Kennect, even if it's multi-territory, across different countries and currencies, or even with multiple layers of incentives.
Having built such a versatile platform, we are proud to say that we have managed to retain all our customers. ICM simplifies and efficiently works sales compensation and improves its business performance. The company is known for its high-performance standards and high customer centricity.
We're pleased to help our customers continue to meet their operational efficiency in managing sales reps. We believe this is another validation of how innovation helps organizations reinvent their customer service to ensure exceptional experiences.
If you don't want to use Kennect, it's okay. We are not the only ones with ICMs!
Talk to different solutions and see if they fit your requirements. Don’t let your incompetency lead to demotivated employees. If you would like to speak with us and understand if you need this solution, we are happy to have a call to discuss your problems and help you solve them. If we could help you solve them, I would be glad to get on a call immediately. (Don't worry, we won't charge you)
You've got to make a clear path for your reps to make a ton of money. If you're a head of sales, it's your job to richly reward stars for outstanding performance while staying aligned with the most critical needs of the business. Then you can have it all: revenue, scaling, expansion-and pleased reps.
ICMs should improve your sales
No matter how much you try to give motivational sales to your team, if you lose their trust, nothing will bring that back to you. Also, they will not do the work if you're not paying them timely and accurately. If your IC system doesn't give transparency on comp plans and their income and guide them on how to hit their numbers, it's of absolutely no use. Also, an attractive pay package does get people in the door. Once they are in, leaders must provide opportunities for advancement and skill development and restructure jobs wherever possible to avoid employee boredom and dissatisfaction.
Keep sales reps informed on their OTE (On-target earnings) and their sdr commission. That's the number that matters the most to them. Most companies have fixed and variable pay in 50:50. Someone might be great in bringing new revenue in a different territory, but it's the worst closer for you. Understanding the competence-based payouts might be required. When you grow your team, you cannot reduce the payouts for your high performers. You need to plan these right from the start.
Comp plans drive individualistic behaviours, so if your company targets team performance as your fundamental value proposition, make sure your comp plan aligns with it. Your comp plans shouldn't speak a different language than your company's vision. These small parts bring the larger picture of your company together. It's sometimes scary to see companies that talk about automation and innovation as key in their blood doing the entire sales compensation using excel sheets.
It will not work because you are not doing it for a single individual but for a team. If you have less number of products or schemes or territories with less number of the sales team, this might work out just fine for you. But if you have a hundred-member sales team (well, include everyone in the entire journey), it would be a mess. The contribution, the role they played, everything small matters.
When it comes to designing incentive programs, there's no one-size-fits-all solution. But by recognising the impact that incentives can have, you'll be more likely to develop a rewards system that creates the desired results.
A personal regret
I worked in sales in the past, and these are basic things I wish someone had explained to me when I was in sales. I never understood my comp plan, and when I would speak to SDRs, especially software sales, they still didn't know about these numbers. I have seen guys who did this math before joining the sales team, and then I never cared about those numbers.
If you are in sales and reading this, please look at the sales numbers more. You should be able to predict them to plan your income accordingly.