Download 6 Sales Compensation Problems that Require Urgent

6 Sales Compensation Problems
that Require Urgent Diagnosis
Overview
Whether for salespeople, brokers, agents, or any
other channels – sales compensation plans are critical
organizational levers to drive desired behaviors and
performance. Yet, when it comes to the management
of these plans, many organizations view it as an
administrative process rather than a strategic tool for
increasing revenue and profits.
Most companies are saddled with the effects of poorly
managed sales compensation plans. Sometimes,
from the surface, it may seem that everything is
under control. However, when you take a closer look,
there are almost always areas for improvements
that will lead to enhanced sales force effectiveness,
productivity, and performance.
The following study article – which is based upon an
analysis of more than 100 companies with large sales
forces – examines the problems that occur during
the design, implementation, and management of
sales compensation plans that cause breakdowns
between strategy formulation and execution. The
paper aims to help large enterprises diagnose their
sales compensation management problems before
they start impacting their performance.
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Copyright © 2015 Optymyze. All rights reserved.
If properly designed and modeled, a sales
compensation plan is aligned with the organization’s
strategy. An ideal plan tells the sales force what
they need to do to help the company achieve its
objectives. (Figure 1).
Though such a closed-loop process could seem
unbreakable, problems frequently arise, produce
errors, and disrupt the chain of causality. To be
able to diagnose your sales compensation issues,
you first have to identify them.
Figure 1 Closed-loop
strategy execution process
Optymyze’s analysis on over 100 companies found six categories
of problems that cause ineffective design, implementation,
and management of sales compensation plans:
Strategic
Misalignment
Misunderstood
Plans
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Errors
in Results
Lack of
Information
Inability to
Adapt
Process
Inconsistency
Copyright © 2015 Optymyze. All rights reserved.
1. Strategic Misalignment
2. Misunderstood Plans
“When CEOs talk strategy, 70% of the
company doesn’t get it,” according to
research published by Forbes. Harvard
Business Review indicates that as
little as five percent of the workforce understands
company’s strategy. An Optymyze study also found
that 68 percent of sales and finance executives
believe their sales compensation programs fail
to drive behavior or align their teams towards
specific goals.
The human resources firm Towers
Watson has found that companies with
effective internal communications
command a stock market premium
over competitors with poor communications. Such
companies are also more likely to report higher levels
of employee engagement and lower turnover rates.
This underscores the importance of making sure
that salespeople understand the strategic objectives
of the company and the compensation plan that
embodies them.
Symptoms of Strategic Misalignment
To assess whether your sales compensation plans are
misaligned with your strategy, ask yourself if any of the
following symptoms are present in your organization:
• plan designs are simplified or modified because they could
not be implemented and managed
• commission costs are rising faster than revenue
• plans haven’t kept up with changes in strategy
and objectives
• frequent use of contests and SPIFs
• frequent exceptions to plan rules
• pressure to find ways to “pay the top people” because
they are underpaid
• salespeople paid for undesirable behaviors
Strategic misalignment can be tackled by eliminating
constraints in the plan design, implementation, and
management. This results in plans that are aligned with
strategy, leading to higher revenue and profit.
Almost 7 in 10 sales and
finance managers think their
compensation plans fail to
drive desired behaviors.
Source: Optymyze study on 100 organizations
www.optymyze.com
Symptoms of Misunderstood Plans
How well do your salespeople understand their plans?
The answer lies in several symptoms your organization
might be experiencing:
• inquiries about how the plans work from more than 1% of
salespeople in the past year
• plan documents are late, lack clarity, are too long, or simply
don’t exist
• salespeople and sales managers have difficulties explaining
how the plan works
• sales force behaviors are inconsistent with the plan goals
• lack of frequent, clear, concise performance information for
each salesperson
• lack of a single, consolidated view of all plan results,
including SPIFs, for each salesperson
To address misunderstood plans, managers should make
sure that salespeople get the strategic objectives of the
company and the compensation plan that embodies them.
The pay-off for a strong
pay-for-performance compensation
program is an increase of $18k in
market value per employee.
Source: Research by Mark Huselid,
Professor of HR Studies, Rutgers University
Copyright © 2015 Optymyze. All rights reserved.
3. Errors in Results
4. Lack of Information
Even when plans are aligned to the
overall strategy of the company and
understood by sales forces, errors
cause confusion and frustrations.
Hewitt Associates indicates that variable pay is
over 11 percent of total payroll on average. Our own
studies show overpayments and other errors occur
when organizations are unable to accurately process
results, diagnose, and fix systemic problems.
• inquiries or disputes from more than 1% of salespeople in the
The inability to design, produce, and
deliver meaningful information to
sales managers prevents them from
making informed decisions. Only
20% of companies use proactive and investigative
techniques to answer questions about “what if”
scenarios regarding their business, according to a Sun
Guard survey. The lack of proactive data reporting
hinders success of effective business intelligence
programs. Lack of information can also harm sales
strategies, other studies suggest. This is consistent
with what Optymyze has found in its analysis of sales
compensation management, with most organizations
unable to produce meaningful information for
managers and sales reps.
• adjustments or payment corrections affect more
Symptoms of Lack of Information
• lack of trust in results, causing salespeople to do shadow
Think about the executives and managers in your organization.
Are any of the following symptoms present?
Symptoms of Errors in Results
With errors accounting for such huge costs – many of which
are unknown – it is important to assess whether your organization is experiencing any of the following symptoms:
past year about potential errors in results
than 1% of salespeople in the past year
accounting and challenge anything they are unsure of
• failure to catch errors early in the process, before salespeople
• managers lack knowledge about the performance of people and
• attempt to manually fix errors with adjustments to input files
• too much effort required to turn available data and reports
• discovery of previously unknown errors made in the past
• too many custom reports tailored to specific managers
• too many managers maintaining their own personal spreadsheets
• managers with no timely access to information and relying
see their results
or changes to computed payments
the effectiveness of plans
into meaningful information
When errors in results are eliminated, an organization
experiences the positive impact of having salespeople
that have complete trust and confidence in the accuracy of
plan results and the information provided to them. Maybe
just as importantly, a company is able to meet increasingly
strict government regulations with respect to the accuracy
of financial results.
By solving this problem, managers are able to make timelier,
more effective decisions rooted in data and analysis.
8 percent of all sales
compensation expenditures
are overpayments.
8 out of 10 companies don’t
use any investigative techniques
to forecast business.
Source: Gartner
Source: Sun Guard
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too often on gut-instinct to make decisions
• managers not able to handle inquiries from their people
• frequent special requests for information, causing a
flurry of activity
Copyright © 2015 Optymyze. All rights reserved.
5. Inability to Adapt
6. Process Inconsistency
Many companies suffer from the
inability to quickly respond to
changes in data, plans, reports, and
processes as organizational needs
evolve. This paralysis in front of change prevents
managers from thinking big, and may even wipe
out an entire service or business.
Caused by the inability to centralize
and streamline sales compensation
processes, inconsistency amplifies
the symptoms of each of the
other five problems. Process inconsistency also
exacerbates their costs and consequences.
Symptoms of Inability to Adapt
Process inconsistency makes itself obvious through various
indications, many of which you may find in your organization:
There are many indications of an organization’s inability to
adapt:
Symptoms of Process Inconsistency
• desired plan changes are avoided, discouraged, or pushed off
• late results or late payments at any time in the past year
• inaccurate results that affected more than 1% of the
• plans have not changed somewhat in six months or not
• long hours worked by staff resolving issues and manually
• frequent adjustments or exceptions to “compensate” people
• difficulty accommodating variations and exceptions that
• difficulties incorporating acquisitions or sales force
• reliance on a few critical individuals who are effective
• errors occur when plan changes are made
• delays or high costs associated with making plan changes
• absence of process documentation, discipline to follow the
into the future
substantially in two years
because desired plan changes could not be made
reorganizations
(even small ones)
• delays or high costs associated with maintaining data, reports,
and analyses as plans change
Upon solving these problems, an organization is able to
quickly respond to situations that necessitate changes to
sales compensation plans. The positive effects of being
able to adapt include higher revenue as a result of ability
to quickly adjust desired sales force behaviors, eliminate
overpayments and errors, and lower administrative costs.
salespeople in the past year
maintain in an attempt to produce timely, accurate results
routinely occur in sales and other data
in their roles
established process
• lack of time to implement new plans, build models, create
new reports, perform analyses, and non-routine work
Upon acquiring the necessary abilities to solve this problem,
organizations experience timelier rollout of plan changes,
more accurate and timely payment of salespeople, lowering
compensation and administrative costs. This also leads to
better plans and plan models, better sales performance
information, and better data management.
The failure of big companies to
adapt to changing circumstances
is one of the fundamental puzzles
in the world of business.
Many companies can’t handle
exceptions and non-routine work
such as plan design, modeling,
and analysis.
Source: Fortune.com
Source: Optymyze study on 100 organizations
www.optymyze.com
Copyright © 2015 Optymyze. All rights reserved.
Conclusion
The impact of all these six sales compensation
problems varies for each organization. For some,
issues may pass unnoticed for months or even
years, until they aggravate and wipe out an entire
service, department or company. Sales operations
and sales managers are often the first to be blamed
for sales compensation problems — which is never
a constructive attitude towards success.
Smart companies regularly get sales compensation
diagnoses to discover and fix the root causes of
these problems, not only the effects. True success
only comes from leveraging people with enough
time and expertise to implement and manage
these processes.
B y collaborat in g wit h sales per for m ance
management experts, organizations experience
timelier rollout of plan changes, more accurate
payment of salespeople, and lower compensation
and administrative costs. This long-term approach
leads to better plans, better sales performance
d ata , a nd mo re accurate man ag em ent
information, empowering companies to deal with
non-routine work.
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About Optymyze
Optymyze helps companies improve sales force and sales operations performance with enterprise cloud applications and business process
management services for aligning sales goals and compensation; efficiently executing sales strategies; driving faster increases in sales results;
and gaining visibility into sales performance.
OPTYMYZE is a registered trademark and Optymyze Sales Performance, Optymyze Sales Comp Cloud, Optymyze Sales Force Cloud, Optymyze Sales Ops Cloud,
Optymyze Sales Analytics Platform, Optymyze Sales Application Studio, and Optymyze Studio Apps and are trademarks of Optymyze.
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Copyright © 2015 Optymyze. All rights reserved.