Towards the end of 2015 I was asked to undertake a review of the sales incentive framework of a large international organisation. The review extended into most of the world’s geographic regions and covered almost 650 sales account managers and specialists. In retrospect it was probably one of the most interesting and challenging reviews, and brought back memories of the time I spent in B2C and B2B sales environments in the mid-1990s and early 2000s.
With the help of another member of the team undertaking a survey, some external benchmarking and data analysis, the review was delivered and recommendations broadly accepted. During my tenure in performance improvement consulting I have produced quite a number of reviews and, at least for me, a key component of a review is to have a good understanding of best practice, or my new preferred term: ‘sound and reasonable practice’. In other words if you are to undertake a review you really need to undertake it against some form of exemplar framework. This may not always be possible, as proved the case a few years ago when working on a local council strategy report. In the absence of a tried and tested exemplar framework defining sound and reasonable practice, researching and reaching an understanding of alternative options, or how others work might be a second best approach. But I digress.
The most interesting part of the review was in fact validating my understanding of what sound and reasonable practice in sales compensation actually is. With some background in both business and consumer sales functions, and indeed having had accountability for a sales commission function I did think I knew a bit about it. This proved to be only partly accurate. In the last ten to twenty years some aspects have in fact changed but others have not, and it is also necessary to consider the context of the sales function, its size and industry.
The premise of the review was that sales performance could be improved and costs potentially reduced by identifying changes to the incentive framework. Over time it had evolved and become more complex than it needed to be and more challenging to effectively manage. Its market had also moved on. Many opportunities to improve were identified and the client was provided with a roadmap towards evolving the incentive framework in a direction that was more likely to meet its cost objectives and market needs.
This particular client was far from unique in omitting to validate its sales incentive framework on a fairly regular basis. In the ten years I spent in sales functions I don’t actually recall any external review of the sales commission schemes. Changes were made regularly but usually originated from the ‘good ideas’ department of the sales function or imported by sales people joining the organisation. Costs were certainly challenged by Finance but these challenges were often fought-off by germinating fears about sales performance. In other words cut incentive costs and sales performance will fall. A growing sales force and increasing scheme complexity had to be met with automation. One member of the support team’s role was just to develop the sales commission scheme. His Excel modelling was first class but I’m afraid there was probably far more trial and error than there ought to have been.
My recent foray into the world of best or sound and reasonable practice has established that these ‘exemplar’ reference points are available. As suggested earlier, due consideration should be made of nature of the sales function (B2B/B2C), the industry within which it operates and, to a degree, its size. I qualify this last point because all sales functions, no matter what their size, ought to have a good grasp of good practices one of which is to ensure that the schemes in operation are written down, as simple as possible and easily communicated and understood by the people to whom it applies.
This is not exhaustive list but some other sales incentive areas to look at would include thresholds, quota, pay-mix, upside potential, payment frequency, complexity, caps, performance measures and eligibility. Then of course there is the administration, system and cost aspects to consider. Governance and change control are also important. How do schemes change, why and who actually authorises these changes? We are now far further forward than we were twenty or thirty years ago and sound and reasonable practices are better defined than they used to be.
In conclusion, it may already be self-evident for those working within sales but the incentive framework and schemes adopted are not the only driver of sales performance. Sales culture and leadership both play their parts as do the standard of communications, training, coaching, data quality and general leadership. However, the right approach to remuneration is still key. You can have the best of everything else but if the incentives don’t work for the sales teams or it is too costly for the organisation then there probably isn’t a long term future for the business. Both cost and ‘sales excitement’ objectives need to be met.
Feel free to get in touch if you think your organisation might benefit from a review of its sales incentive framework against internationally recognised sound and reasonable practices.