Author: Connor Barry
Lessons Learned from 2021 and 2020
The past 2 years have been challenging to say the least. Not many people expected to still be experiencing the effects of the pandemic for so long, and we are now seeing one of the largest shifts in the labor markets in recent decades. The “Great Resignation” is affecting every company large and small with as much as one-third of the workforce changing jobs, and one of the key elements that many employees cite in exit interviews is compensation. These impacts will still be felt in 2022 and it’s important to think about both retention of key employees and attracting new talent to fill vacant positions.
Companies need to think about the appropriate set of compensation elements that will continue to drive the appropriate behavior, while also providing attractive compensation benefits. We recommend evaluating your quota or target setting process, evaluating recoverable and non-recoverable draws, plan simplicity, as well as performance thresholds for exceeding targets. One crucial element to think about across all compensation plans should be awareness of bias, and potential inequities you may have across your compensation plans.
Quota and Target Setting:
Motivating your sales force through targets or quotas helps create transparency in what you expect they should be able to achieve in their role. Setting targets and establishing quotas can be a difficult task in the best of times, but it’s more important than ever to think about what’s achievable for your sales force, while also keeping stretch targets for growth in mind. Employees who see an achievable target are more likely to work towards hitting it and potentially exceeding it. When a target is clearly not attainable, it will create more motivation to look for work elsewhere rather than focusing on selling. Implement quotas or targets that will motivate your team to achieve their goal, while allowing your star performers to continue to achieve as well.
In uncertain times, draws can be an effective way to provide some stability and confidence in your sales force for both new hires and experienced sellers alike. Based on your organizational goals these draws can be either recoverable or non-recoverable. Recoverable is generally more financially beneficial to the company, while the non-recoverable draw benefits the salesperson more. In either case, it’s important to create draws that ensure your sales team knows they will be compensated for their work, while also incentivizing them to hit targets set for them. One key area of consideration in addition to the actual draw amount is the time period that you’re willing to keep an employee on a draw. When thinking about this, we recommend that you recognize the ramping period for new hires, as well as your time to close metrics so that these draws don’t extend for too long but also allow for your team to get up to speed and close business.
Keep Your Design Simple
If your sales team can’t understand what makes up their pay, your plan will be less effective. Convoluted plans which are only understood by people with advanced math degrees result in less trust, and more manipulation by those that do understand their compensation plan. Salespeople want to know what they can do to earn more, and you want your team selling, rather than building out extensive excel sheets to model out complicated what-if scenarios. Additionally, simple compensation plans are easier to report on and update in compensation tools. Companies who keep their compensation plan design simple reap several benefits:
- Trust from Sales Team - Sales Reps dispute commission less frequently because they understand what they’re getting paid and why.
- Higher Productivity - Sales Reps spend more time selling and less time with their managers asking questions about their pay.
- Lower implementation costs – Limiting or removing unnecessary “exception rules” can reduce the cost of implementation due to complexity.
One counterintuitive technique we have seen in 2022 compensation planning is around aggressive performance thresholds to payout sooner. For example, if you utilize an attainment rate table against the yearly target, a salesperson may only be able to start achieving higher rates later in the year. This can be demotivating for both new hires and experienced sellers who may be looking for more attractive positions elsewhere. By paying more earlier in the year, you can work on retaining talent as they will be able to realize more of their variable components sooner. You can counteract this high payment either through the implementing period caps on compensation or by relaxing performance tiers that one achieves later in the year.
It’s critical that companies spend time studying and evaluating the impact of their compensation across various identities. More states are starting to create labor laws that require evaluating your pay across gender and other identities. What is the racial or gender mix of your sales force and are there inequalities in how you are paying people? If something is important to an organization, it’s critical to measure it. Sales incentives have generally been better about removing bias, as pay is tied to individual performance; however, how we set up plans, create account lists and territories, as well as how we coach and train individuals can impact this across the company. It's important to understand the census of your organization, how teams are organized and how we create plans that are truly equitable and allow for individuals to perform.
To learn more about how a commissions solution can benefit your business, reach out to us at Canidium.com/contact