I recently read this in an article from a sales compensation expert, “In high performing sales organizations 50-70% of sales people achieve quota. If your team is significantly above this, it’s possible your quotas are too easy. If more than 50% of your organization cannot achieve quota, you may have a quota setting issue or a larger problem with coverage or sales strategy.”
I’m not a sales compensation expert. How could I be, once I was told by a manager, “Your pay increase will become effective when you are….” I’m still trying to figure that one out 😉
But I’m struggling with this statement. I kind of get it, but I have some problems with it.
As sales leaders, we know it is very unlikely that 100% of our people will make quota. Yet, it’s critical that we make our business plan. As a result, there is usually some level of overassignment. That is, we actually assign more quota, in total, than our business plan. The thinking is, that if we get the balance right–knowing some people will miss achieving their quotas, overall things will work out so that we achieve the business plan.
There’s another principle at play–the stretch goal. Many executives (me included) set stretch goals. We want to see if we can push a little more than we think we can achieve. In some ways, the concept is not dissimilar to overassignment. After all, if we don’t achieve the stretch goal, we probably will achieve the business goal. The thinking around stretch goals is to always challenge us to reach a little further than we think we can achieve.
So I get the concept of having quotas that are slightly higher than our business plan.
But I really struggle with the idea of purposely designing quota assignments with the idea that only 50-70% of our people will attain the goal.
Looking at it differently, we are deliberately designing the quota assignments so that 50% of our people fail!
To make it even worse, remember this was the expected performance for high performing organizations. So good but not great organizations will have a higher failure rate, and mediocre organizations will………well you get the point.
So I’m struggling with understanding this. Why do we want to have a design point were 30-50% of our people will fail.
Since this is coming from a compensation specialist, I suspect there is some weird compensation logic to minimize payouts to people, or to provide a bigger pot to fund the very small numbers that will overachieve. Again, if we are overassigning by so much, it’s unlikely that many, if any people will overachieve–and certainly not by a huge amount.
I know these compensation specialists have all sorts of “interesting mathematical models,” basically oriented around assuring we don’t overcompensate–particularly for less than satisfactory performance. But I don’t get it!
Basically, when we look at the cost/affordability of a sales person, we determine an acceptable “at plan total compensation.” Stated differently, we are saying, “If the sales person achieves their goal, we are ecstatic with paying them $X.”
We build our cost of selling models around this concept of “at plan total compensation,” and, as a result we fund our selling programs based on this assumption.
As we look at developing the compensation schemes, we’re particularly worried about underperformance. We don’t want to pay people to underperform, that is there should be some penalty for underperformance. For example, I recently worked with a client to look at a compensation plan. We believed people under 80% year to date were performing at an unacceptable level, so they were not eligible for variable comp (say commissions) if they were below that threshold.
At the same time management recognized the key issue in this was less a compensation issue and more a performance management issue.
On the overattainment side, since we are dealing with incremental revenue/margin the funding becomes very easy and we can afford accelerators while still lowering Cost Per Order Dollar.
Again, the fundamental principle is we are delighted, even ecstatic to pay our people the total at plan compensation when they achieve plan, simply because it’s what we have budgeted and deemed a reasonable cost of selling. In the ideal case, we would be ecstatic with paying 100% of our people their targeted at plan total compensation, because by doing so, it would mean 100% of them made plan! (Remember, I’m a stretch goal guy, so next year I am going to up their quotas, but that’s just me 😉 )
So when I look at the statement that we purposely design quota assignments expecting only 50-70% of our people will make it and fully expecting–even hoping 30-50% of our people will fail, I’m just dumbfounded!
What are we trying to achieve? Clearly, we are trying to reduce total compensation expense–but what at what cost (both from a financial and people point of view). When we have determined acceptable at plan total compensation, why are we trying to design quota assignments where 3o-50% of the people will fail? Why are we trying to save that money?
What does it mean for the 30-50% that fail to achieve quota, do we terminate them? Are they problem performers, or is their problem that we really trying to undercompensate them?
What does this mean to our ability to attract and recruit talented people? The people we want, high performers will push themselves to achieve, but at the same time they recognize reasonable and unreasonable quota expectations.
Somehow planning for 30-50% failure seems completely the opposite of our responsibilities as managers and leaders. Our job is to maximize the performance of everyone on our teams. We do this by making certain we have the right people in the right roles. We make sure they understand our strategies and priorities. We enable them to execute by providing systems, tools, processes, and training–as well as removing roadblocks to performance. We focus on coaching and developing each of our people–engaging each one of them. We address performance problems as performance problems, not shying away from them. And we compensate people fairly.
I just don’t get it.
Yes I understand we do have to have some overassignment, not everyone will make plan, but is it sound business management to plan for 30-5% of our people to fail? Is this what leadership is about?
Of course, I’m not a compensation expert, so clearly I can’t possibly understand their strange calculus. But can someone help me out, what am I missing? Why is this great management practice?