Fifty-six percent of 130 companies surveyed see room for improvement in their sales compensation plans. In fact, 79 percent of companies have made six or more changes to their plan in the past two years. Despite these frequent changes, the majority of companies are still dissatisfied with their plans and report sales productivity is not achieving its goals.
The survey shows that companies frequently change the sales compensation plan, but don´t address the underlying business strategies that could really drive sales and deliver productivity to achieve a pay for performance balance.
"Too often, companies fall into the trap of thinking that sales underperformance is primarily a compensation issue. Many companies fail to do the hard, but strategic work of segmenting customers to identify those offering the greatest value to the company," says Larry Montan, a partner in Deloitte & Touche´s Human Capital practice.
"Even companies that have segmented customers frequently have not organized their sales force and compensation programs to drive behavior that supports strategic objectives, such as selling into new channels, pushing new products, or targeting the most attractive customers," Montan explains. "Instead, basic compensation programs continue to reward sales reps for selling any products, rather than those that are a tougher sell but more strategically important to the future of the company."
Critical organizational and compensation changes made to their sales compensation program in the past two years, as reported by respondents include:
* 69 percent expanded sales force
* 58 percent changed reporting structure
* 44 percent realigned sales representatives
* 88 percent changed total cash compensation
* 90 percent changed incentive pay mechanism (bonus vs. commission)
* 88 percent changed performance metrics
The survey indicates a backlash to the numerous changes -- namely that the confusion they create within the sales force leads to decreased productivity.
In response to the survey, Deloitte & Touche offers companies the following recommendations to improve their sales organizations:
* Maintain and reinforce tight linkages between sales performance and compensation
* Ensure that the plan supports the company´s strategic goals, aligns with customer segments, and differentiates top and middle performers
* Simplify the compensation plan and its administration to help bring order to increasingly complex selling environments by using new technology and software products that are available
Watch for "red flags" of sales compensation program failure, including:
* Plans that do not appear to differentiate between high and low performers
* High sales performers leaving the company
* Sales goals not being achieved
* Sales reps not understanding and/or paying attention to the sales compensation plan
* Incentive dollars not producing the results the organization needs
* A sales compensation plan that has not been formally reviewed for strategic alignment in more than three years
* Grow your current customers first by including plan design features which reward for this
About the Survey
The survey included responses from 130 companies across a wide range of industries. Nearly two-thirds (63 percent) of the respondents were sales and marketing executives, with the balance composed of company presidents, founders, and other top executives. Thirty-five percent of respondents work for companies with annual revenues greater than $100 million, while 65 percent work for companies with annual revenues under $100 million. One-fourth of respondents employ more than 50 sales representatives, while 75 percent employ fewer than 50 sales reps.