![\"\"](\"http:\/\/bobbacon.net\/blog\/wp-content\/uploads\/2011\/07\/Component-Weighting-300x191.jpg\" "\\"Component")
One approach to improving the focus of your sales comp plan is to carefully manage the number of components your commission plan includes.\u00a0 Since fewer commission plan components\u00a0result in a more focused plan,\u00a0how do you reduce them while maintaining alignment with the myriad of corporate goals you are tasked to achieve?\u00a0 Here are three ways to better focus your sales comp plan.<\/p>\n
\u00a01) Focus on the role’s\u00a0specific job responsibilities.<\/strong><\/p>\n A key factor in the effectiveness of any commission plan component is control; does your resource have control over his success in achieving the target or is the target most influenced by the work of many?\u00a0 This dynamic is the reason that large \u201cteam\u201d quotas are usually frowned upon by executive management.\u00a0 It allows poor performers to hide.\u00a0 A high correlation of individual control along with a significant portion of their variable compensation tied to that component will drive behavior OR reveal resource weaknesses over the course of the plan year.<\/p>\n 2) Eliminate highly correlated components.<\/strong><\/p>\n Senior sales managers often carry a margin component as well as a sales target.\u00a0 Unless the manager is a GM and responsible for ancillary functions like regional PS or Support, his margin target is comprised of revenue less cost of sales and can be represented as a percentage of sales.\u00a0 In this case the relationship between revenue and margin is nearly\u00a0linear and having both as components is suboptimal.\u00a0 If the relationship between sales (bookings) and revenue is also linear (over the course of a year it usually is) then I would suggest that these two components drive essentially the same behavior and one could be eliminated without jeopardizing results.<\/p>\n 3) Consider a minimum component weighting.<\/strong><\/p>\n The prevailing wisdom\u00a0is that\u00a0money drives behavior (see this article<\/span> for an alternative perspective) but not if the relative amount is insignificant.\u00a0 Ask yourself, does a resource with an OTE of $200k change their behavior if $10k of their variable comp is tied to a special activity such as new account acquisition?\u00a0 In my experience this plan participant will shrug off the smaller component and rationalize they will still make their OTE by over achieving on the\u00a0higher leveraged\u00a0components.\u00a0 Component gating factors can mitigate this but also add plan complexity.\u00a0 For special activities such as new account acquisition or customer referenceability you could consider a set payment outside of OTE, like a SPIFF.\u00a0 In my opinion\u00a0to be effective in driving behavior a plan component should be tied to a minimum of 30% of the plan participant\u2019s variable comp.<\/p>\n Keep in mind that the best comp plan in the world is not a substitute for good management.\u00a0 <\/strong>Don\u2019t expect that your team will \u201cmanage themselves\u201d if you issue the perfect comp plan.\u00a0 As discussed above there is usually of myriad of corporate goals and corporate policies not addressable in a sales commission plan.\u00a0 Your leadership, guidance, development and coaching are the most effective drivers of your team\u2019s behavior, the results of which will endure long after the end of the plan year.<\/p>\n Please feel free to\u00a0reply below with your own comp plan\u00a0design improvements to help focus your selling resources in a way that contributes to their effectiveness!<\/p>\n Cheers!<\/p>\n Bob Bacon
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