How Not to Develop a Sales Compensation Plan

Jul 13, 2021

Sales compensation has escaped the scrutiny that Marketing or Operations spending gets, despite its impact on both budgets and revenue growth.

We’ve been so shocked by the flippant attitude that many take to sales incentive plan design, that we decided to collect them into a collection of the worst IC advice we could think of.

For heaven’s sake, DO NOT FOLLOW THIS ADVICE.

1. Pick sales targets that "feel right"

Nothing beats gut feeling. Just pick a number a move on:

5% more than last year
5% less than last year (sandbagging never hurt)
Something we all agree on
Out of a hat
The alcohol content of your favorite Pinot Noir
Arm-wrestle for it
Whatever the CEO said
Whatever the VCs said
Whatever Doris from Finance said

2. Ignore historical sales data

We're living in a post-truth world. And COVID changed everything, bruh.

Stop living in the past.
It’ll take forever
We never did get those dashboards to work
Yawn

3. Give everyone the same compensation plan

It's not worth making a different plan for everyone (think of the spreadsheets). Plus:

Territories don't matter
The market never lies
Fair's fair.
Who cares about business goals?
Doris said it’s cheaper.

4. Forget about driving behavior

OMG. That’s like, so manipulative.

It only makes a tiny difference.
People are nuts anyway. What can you do?
Money doesn’t motivate people anyway.

5. Don't plan SPIFs

WTF is a SPIF?
Sounds complicated
Takes too long to figure out
It won't go in the ICM software
We've got a plan already
Just try it next year
Doris said there’s no budget for it

6. Skip the compensation risk analysis

What's the worst that can happen?

I didn't even know that was a thing
It’s not like there’s going to be a pandemic
That sounds like a job for Doris

7. Leave sales reps to figure it out

We already told you: "This year, we're doing an uncapped multi-channel split with a triple-tiered multiplier and the superstar accelerator on double-plus contracts — but the same 6-month clawback period and 20% instant recoverable draw."

What's so hard to understand?

If they want to earn more, they'll figure it out, right?
They're smart people
It's dog-eat-dog out there, baby
Coffee is for closers

8. Just do the same thing as last year

Can anyone tell if last year’s plan worked anyway?

Is it worth the hassle of changing it?
If it ain't broke, don't fix it.
I'm late for golf

9. Change the IC plan completely

Got to keep those crafty reps on their toes, right?

What else do those analysts do?
Should we just switch to PLG with usage-based pricing?
I read about this thing that someone did at Amazon in 2014
My wife needs me out of the house

Develop Your Sales Compensation Plan with Care

There are a lot of harmful myths about how to develop a sales compensation plan.

Part of the problem is that most people aren’t sure why they’re paying their employees a percentage of the sales they make. The reason is, of course, to encourage them to sell more.

Money is a great incentive. But ask any more details about why this element of the plan does or what behavior this incentive is designed to produce, and few people in an organization will be able to tell you. Fewer still will be able to tell you if it worked.

That's a surprisingly lackadaisical attitude towards a business unit that’s responsible for as much as 30% of spending — spending that directly influences revenue growth.

This article is tongue-in-cheek, but you'd be surprised to find this isn't so different from the way many companies approach incentive compensation plan development. And it's costing them a fortune.

In this story

Example H2

Example H3