4 next-gen sales compensation trends you can't ignore for 2025

Between changing go-to-market models and access to new tech (everything from AI and predictive analytics), there's now more innovation than ever in how organizations incentivize sellers and maximize motivation.  

Instead of straightforward commissions on closed deals, the entire discipline of sales performance management has been fast-evolving into a more dynamic, data-driven, and intricate process.  

In fact, as businesses pivot their strategies to market demands, sales compensation (harnessed correctly) can be one of the most critical levers for driving revenue.

So what should you pay close attention to during your sales planning season this year?

At NUDGE 2024, our virtual conference, we invited Rick Butler of ServiceNow, Dal Sidhu of Zoom, and Dr. Robert Bieshaar of Autodesk to discuss emerging sales compensation trends and their impact.  

From the individualization of plans, cadence of sales incentives, quota customization hypotheticals, and more, the conversation was action-packed.

You can catch the entire session on-demand here, or we've summarized our key takeaways below.

1. From macro to micro: there's demand for more granular sales comp performance metrics

According to our panelists, one of the top trends in sales compensation is the move toward granularity. Organizations are focusing on highly specific, data-driven performance metrics to align compensation with their broader strategies.

Thanks to the vast amount of data available today, and a stronger focus on more sustainable, long-term revenue—companies want to compensate on granular metrics that account for customer retention and adoption.  

However, while granular performance metrics offer precision re: what you can pay on, they also introduce complexity. The more metrics you track, the more difficult it can be to administer the resulting compensation plans across the entire organization. However, with the right tools, you can mitigate the challenge.

In the software space, in particular, where usage and consumption metrics are key, sales compensation leaders are now working ever more closely with Product teams to ensure adoption data is captured as new features release. This to ensure metrics you'd like to pay on in your plans are even possible.

Here's a clip of our experts on this topic:

As Robert Bieshaar shared, along with this focus on granular metrics (and the associated product telemetry), sales orgs are moving toward more specialized compensation models tailored to roles, sales cycles, and activities.

There are different, more specialized plan types being developed for reps based on the sales cycle and duration they address. Our experts noted that in the past you may have only worked with annual cycles, but today there are various factors at play.

2. Complexity is compounding with comp considerations spanning the customer lifecycle

As a major theme surrounding the entire discussion, there's now greater importance on aligning sales comp with the entire customer lifecycle.

Thanks to a more subscription-driven world, compensation considerations have expanded to encompass activities beyond initial transactions. I.e. sales has downstream impact on customer adoption, retention, and expansion, so sales comp needs to account for activities throughout the sales process that lead to especially sustainable customer outcomes.

A related challenge with this full-funnel focus is balancing your sales resources for the acquisition of net new logos versus retaining or expanding existing customers.  

While acquiring new customers often involves longer sales cycles and specialized roles, retaining and expanding within existing accounts is equally crucial for sustained revenue growth. This is impacting how companies consider budgets for their sales teams and role allocation.  

As Dal notes, you need to consider the number and type of sales resources you dedicate pending the type of accounts you must service (and the economy of whatever choices you make at scale). Part of this involves making an informed judgement call on the types of customers your business values most at a given time, considering your financial goals and associated compensation costs.

Overall, companies are now focusing on structuring comp plans that encourage sales teams to balance time and effort to both new acquisition and customer expansion. Companies are weighing up the high cost and complexity of acquiring new customers versus upselling and retention.  

3. Activity-based incentives are increasingly possible (and their success requires ties to outcomes)

Strongly related to being focused full-funnel in the customer journey, our experts are also seeing a shift toward rewarding sales reps for activities that drive long-term customer success.

It's essential that sales comp and revenue professionals understand the detailed, end-to-end-process associated with the go-to-market motion for developing sufficient comp plans. You also need to know which activity-based metrics are worthwhile to reward on.

Our panelists all noted that compensating for specific activities requires careful planning to ensure that these activities are tied to meaningful outcomes.

As Dal Sidhu highlighted, to be able to reward on activity-based incentives, companies like Zoom are increasingly relying on data to track every facet of the customer journey, from the initial sale to product adoption and renewal:

Regarding success with ABIs, we especially loved this takeaway from Rick Butler, who shared from personal experience:

“Many times people gravitate towards rewarding the completion of an activity without asking the ‘so what’-question.

I get a lot of pressure from my CFO on all of the plans that have any element of either a key sales objective, or an MBO in it, because they feel like those are gimmes, right? i.e., people are automatically going to get a 100% achievement, so why even bother doing it?...
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We've spent a lot of time making sure that when we look at individual activities where we have them, that they fit into that overall sales process and they lead to the completion of what would be the next step or the result…
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it's really key to make sure that in an activity-based plan that it's not just about doing X, it's about seeing the result that comes from it."

The pitfalls of pipeline creation as an activity-based metric  

One activity-based metric that caused debate—is pipeline creation. While it may seem like an easy win, paying for pipeline creation alone may not always yield value unless tied to a conversion or retention metric.

As Dal Sidhu shared:

"Pipeline creation is table stakes....It’s not something I would compensate on. It needs to be tied to a result, like conversion."

If you wish to be successful with activity-based measures, Rick Butler suggested he might consider either sales velocity or close rate as a metric, but not necessarily pipeline.

Ultimately, As Robert advised, to be successful with activity-based incentives:

On administering activity-based plans at scale ensuring scalability and integrity is crucial. Robert also advised:  

"Don’t choose metrics you can’t automate...It may sound good on paper, but if you can’t measure or audit it, it’s not worth including in your plan."

Our takeaway?

If you haven't already, consider how you can recognize contributions to a deal beyond just the final sale and how this leads to even better business outcomes. Could you incentivize activities associated with deal velocity? Could you reward adherence to a specific sales process your business knows amounts to customer longevity?  

This holistic approach can lead to a more engaged and productive workforce, plus, activity-based incentives are now even more possible Check out our webinar on-demand all about this topic.

4. Comp plans can be customized, but it's not choose-your-own-adventure

One emerging concept in sales compensation is offering sales reps the ability to pick their quotas or pay structure, empowering ownership over their performance.

As sales teams become more diverse, with varying roles and seniority levels, one-size-fits-all compensation models are proving ineffective. So, companies are increasingly tailoring incentives to individual contributions, leading to better engagement and motivation among salespeople.

Though, as we learned from our experts, individualization of comp plans is often misconstrued to mean custom-plans-for-everyone, which isn't true:

The key takeaway here?

You must balance individualization with comparability. You can structure sets of comp plans around similar roles or activities with commonalities. But just as you wouldn't hyper-individualize HR benefits packages, comp plans are similar.

As sales comp plans become more tailored, companies need to balance customization with the ability to compare performance across roles.

Further, as compensation plans become more individualized, the administrative burden grows. Our panel discussed these implications, and what you need to consider for this today:

The administration of hyper-individualized plans is where the panel suspects AI will play a key role, not only in automating processes but in helping design plans that align with broader business strategies.

"We are leveraging AI to assist with response times, but I haven’t fully walked on the dark side yet and let it help with plan design," joked Rick Butler; though, it’s clear that AI or machine learning will soon be instrumental in scaling individualized comp plans and their administration.  

Our takeaway?‍

If you've got an SPM or ICM platform in place with sufficient workstream automations, you might begin to experiment and tailor compensation more individually by considering the metrics you need to measure or compare everyone on first. Discover what's common for everyone as a foundational base, then try finding the right blend of what's truly unique for handfuls of roles for some unique individualization options.  

Further, if developing highly individualized pay structures isn't in your immediate future due to administrative burden, you can still strive to do other things to improve a sense of fairness and transparency among your sales force. You might refine your quota-setting processes by considering market conditions, historical data, and realistic expectations, for example. Aiming to provide especially achievable targets.

A shift toward faster business cycles is changing the demand for especially agile incentives

As our discussion highlighted: business strategies shift, and so too must sales comp plans.

The overarching trend of moving to shorter incentive cycles, like quarterly reviews, allows companies to adjust and align even more frequently.

There are faster business changes and as a result, quarterly adjustments can give you the ability to test different incentives and strategies without waiting a whole year to adjust your sales performance strategy.

Today, it's become about aligning strategy with compensation in real-time, and equipping your team with the technology that it takes to do this efficiently.

As you prepare comp plans for 2025, consider how a full-stack sales performance management (SPM) platform like Forma.ai can vastly accelerate the entire sales planning and execution lifecycle and offer flexibility to keep your comp plans competitive.