Has your company started planning for 2017 sales compensation and its impact on recruiting?
Financial Compensation
Although some companies are planning significant increases to sales base salaries in 2017, most employers are projecting lower increases compared to 2016 according to the Economic Research Institute (ERI), an organization that provides compensation information. In addition, some employers are planning to eliminate increases in base salaries in favor of non-recurring incentives for individual performance, such as quarterly and annual bonuses. This conflict in sales compensation projections mirrors the conflict in total 2017 compensation projections. (Please see CNI Recruiting’s post “2017 Salary Projections and Recruiting“.) Not surprisingly, most sales professionals continue to favor annual increases in base salaries.
Non Financial Compensation
As expected, financial compensation continues to be the leading motivator for sales personnel. According to a recent study by the Aberdeen Group, a research organization dedicated to improved business performance, the following are significant non-financial motivators, in order of priority: Recognition of positive performance, employer efforts to align employee values with company values, professional skills training, and opportunities for promotion. Others may be found in the above referenced article.
Compensation Plans
Comp plans should have the following objectives:
- Reward sales performers, encourage them to exceed established sales goals and contribute to retaining them
- Limit compensation for non-performers and contribute to eliminating them
- Communicate company strategic goals
- Encourage comprehensive prospect qualification and customer care
- Achieve an appropriate balance between new revenue and expenses
- Contribute to recruiting top sales pros
Well designed comp plans should include:
- Quotas and other sales goals. Establishing the right sales goals is critical, yet most companies rely on anecdotal information or guesses to do so. The process of setting sales goals should involve careful analysis of multiple factors including previous sales performance, territory, market potential, product maturity, etc. Companies should consider the use of quota thresholds, i.e. incentives will not be paid until a certain percentage of quota has been achieved. Sales goals should be adjusted for new sales reps.
- Sales Incentives. Incentives should be aligned with company strategic goals, because sales professionals will modify their sales efforts based on the type and amount of incentives in their comp plans. For example, incentives for selling recently introduced products/services may be greater than for selling others, or sales to new customers may carry a higher incentive than sales to current customers. Incentives should be uncapped and should include accelerators (additional incentives for exceeding quota, or achieving a certain level or type of sales).
- “Annuity incentives”. Whenever possible, comp plans should include an “annuity” component that provides incentive payments for long term agreements and continuing revenue. This encourages reps to provide great customer service and discourages successful reps from leaving your company. The “annuities” should be designed so that they cannot exceed a certain percentage of total compensation to encourage continued business development.
- Commissions should be paid as customers pay. This motivates sales reps to qualify prospects with regard to their ability to pay and also to take good care of customers after the sale.
- Balance between new revenue and expenses. P&L models for various scenarios should be considered prior to finalizing comp plans to insure that they contribute to profitability.
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