Sales comp people: we get where you’re at. You own one of the biggest lines on your company’s P&L sheet. You’re literally responsible for directing hundreds (thousands?) of salespeople to focus on the accounts and activities that impact the business. Unfortunately, you’re also most likely to be blamed when 1) salespeople aren’t earning as much as they think they should be, 2) salespeople aren’t selling the products or accounts the business wants, or 3) reps leave because they’re not happy with how they’re being paid.
Here’s the thing: we think that’s not fair.
Why? Because quite often it’s not your fault.
This isn’t to say that most comp plans couldn’t use a little tweaking – simplification, personalization, gating, better communication, whatever. Most can. But when comp plans are built right, and they still don’t work, the problem is rarely with the comp plan itself.
We’ve seen it hundreds of times. An org shows us their comp plan, says “it’s not working,” and throws their hands up. It usually takes just a few questions to pinpoint the real problem.
What is it? Most of the time, it’s territories and quotas.
This is why it’s usually not fair for you to get the calls, complaining that reps aren’t getting paid enough.
It’s also why we say the biggest lever in incentives usually isn’t about incentives – it's territories and quotas. Get those right, and your comp plans can do their job. Get them wrong, and your comp plan is dead at the gate.
“Territories and quotas? I don’t manage those!” you might be saying. That may be true! But we’d also say that you probably do have the opportunity to make your job significantly easier, and more effective. Other people’s jobs too. This also tends to be a powerful way for you to re-emphasize the value of the compensation function to your org. (It’s also a great way to grow your career.) Let’s see how.
What’s wrong with the comp plan?
Why do comp plans fail? Well, we've been in this comp game for quite a while. And in our experience, when comp plans fail, it’s usually one of a few culprits. Certainly plans can be designed poorly. They can be too simple, too complex, not structured right, etc. Those are easier fixes. Sometimes they’re not communicated to reps clearly enough. That’s a trickier, but not impossible fix. They can also be stymied by business leaders who change their minds too frequently. That’s a whole different ballgame.
But in our experience the number one reason comp plans fail is that they’re not set up to succeed. And when they’re not set up to succeed, the problem is usually that comp and sales planning (t&q) are treated as separate, unconnected activities.
Some examples:
- To ensure your top reps don’t leave, over time the org has defaulted to giving them the juiciest, easiest-to-close accounts. Every year those reps far exceed quota. Meanwhile, your other reps are working twice as hard but still not hitting their numbers. Management wants to push those reps more. So you implement some short-term SPIFFs aimed at getting these reps to “work a little harder.”
- You’re introducing a new product line. You really want reps to focus on selling it. However, there’s no gate to hitting accelerators or President’s Club based on product mix. So instead of selling the new product (which is harder to sell than something they’re already familiar with), your reps go on selling the products they already know. What happens? Pressure comes down on you to design a SPIFF to get reps to sell the new product line. When the numbers still come in short, you get blamed, even though this problem could have been solved by changing the quota gate.
- Reps are waiting for their new comp plans. Unfortunately it takes months to design the territories and quotas. By the time your team gets the information, it’s already 2 weeks into the quarter. You only get a week to redesign your plan, then execute on it. If you had more time you’d design something way better, but given that you have to roll this out, you create an MVP that you hope to improve upon later. Of course, once reps start selling against this plan there’s so much maintenance to do that you never get to that improvement part.
What do all these scenarios have in common? They’re territory and quota problems disguised as comp plan problems. The comp team is asked to put a band-aid on the problem, but it’s not really a problem they’re empowered to solve. And when the solutions (like SPIFFs) the comp team puts in place do work, you often pay lots of money to solve a problem that wouldn't exist with a better territory design.
Getting these parts to work together
Ok, you may be saying, I definitely see one or more of those issues. But again, I don’t control territories and quotas! What am I supposed to do? We’ll cover that in the next section. First, let’s see what happens when territories and quotas are set up right, and when that information flows smoothly to you and your team.
- Each year reps complain about unfair patches. To fix this, instead of balancing territories based on raw dollar amounts, the T&Q team adds in a “propensity to close” calculation. The territories that result are designed to give reps equal opportunity to make money. Then, when you build a comp plan, you’re doing it not to fix inequalities in the territory plan, but to actually motivate behavior.
- A few of your top reps get lured away. What happens to those accounts? Usually there’s confusion, which produces payout disputes (which makes your life miserable) and lost deals (which makes everyone miserable). But what happens when accounts are assigned to new owners right away, and that information is communicated to you? You can quickly rebuild comp guidelines, so that everyone gets paid fairly and on time.
- A new product gets introduced. But it’s pushed on reps whose accounts aren’t suitable for it. Today you keep adding SPIFFs, but they don’t work. In this new world, quotas that include the new product are re-tailored to each territory’s potential. There’s no longer a need for you to keep layering band-aid SPIFFs.
- Demand for your products is seasonal. But existing quotas and static comp structures fail to account for seasonal spikes or dips, creating targets that are either unattainable or trivial. In this new model, territories, quotas, and comp plans are adjusted for seasonal realities, so reps are always incentivized appropriately to the time of year.
But what can I do?
Yes, what can you do? Well, it depends on your goals. If your goals are to continue to be frustrated by circumstances that make your job harder than it needs to be, then – well, do nothing! But having been around this space for a while, we’ve found a few things that can help.
First, you can bring this idea up with your boss. Or your boss’s boss. There’s lots to recommend about this conversation!
Or you can go to the people in charge of territories and quotas, and work with them to create an initiative of some sort. It’s not that hard. We’ve helped hundreds of people have this conversation. It usually goes something like, “Hey, as you know, our work is very connected. I think we can provide real value to the business if we're able to work together on aligning our efforts.”
As a bonus, we’ve seen many people grow their career this way. If you’re working in comp and want to think larger, fixing this problem can give you lots of leverage and exposure. It’s how we’ve mostly seen comp professionals get promoted to head of sales ops, or other similar roles.
Note also that in most companies the comp department is viewed as the team that executes on other people’s strategies. Again, if you’re ok with that, that’s cool. But in our experience once comp folks start getting themselves involved in larger discussions about territories, quotas, and sales plans, they tend to be increasingly viewed as a strategic input.
Second, you can know there is an actual solution. The technology to help with problems like this is relatively new – it's only been in the past few years that tools that can deal with territories, quotas, and comp at scale have started to reach maturity. There are now solutions that can help balance territories, then flow this information down to your comp plan in real time, while keeping reps in the loop. Of course we think our solution is best at this (learn more here), but it’s ok if you go with someone else – we're more interested in changing the way teams think and work.
Finally, you can think about the risks of doing nothing. Your job is difficult. (We know this!) As you scale, it’s only going to get more difficult. You can decide if you’d rather spend your time putting out fires, or if it’s worth putting a little more time into setting things up so that you can be the hero that drives actual business results.
If this sounds appealing to you, we’d love to talk. We’re building a whole new way of doing SPM, and we’d love to get your input.
