“Fixing The Compensation Problem…..”

I always worry when a conversation with a sales executive starts with, “We need to fix our compensation problem.”

The ensuing discussion usually focuses on, “We aren’t meeting our numbers, we need to fix the compensation/commission  system in order to make our numbers.”

At this point in the conversation, there is an uncomfortable back and forth:

Me:  “Why do you think your compensation structure is the problem in achieving your numbers?”

With relatively naive managers, the response is, “Well sales people are coin operated, if we want them to change what they are doing, we just need to adjust the compensation system.”  My response is, “Do you know what they should be doing—other than making their numbers?  Do you know what’s keeping them from achieving their goals, will fixing their compensation fix those problems?”

Others are, I think, less certain, but think compensation is the starting point to driving performance, “Well, if we don’t fix the compensation system, how will we make our numbers.”  My response is usually, “How do you know that compensation is the issue that’s impacting your people’s performance?”

Both of these groups of managers are right in some sense.  In general, our compensation systems are perfectly designed to achieve the results we are getting.  So the thinking is that changing compensation systems will change the results.  But here’s where the challenge starts—is redesigning the compensation system the right starting point?  Alternatively, “are we getting the results we are getting because of compensation, or are there underlying issues that impact our ability to achieve results?”

First, compensation is only one of many levers sales management can use to impact performance.  Since it is usually the most expensive, and since we want to minimize changes to compensation systems, it’s probably the last thing you want to do in improving performance.  There are so many other tools that have greater impact in shorter periods of time.  Setting clear performance expectations, having clear leading metrics, coaching/developing your sales people–understanding the specific issues impacting each person’s performance.  Even the training, tools, systems, processes, programs we provide are important levers to fixing sales performance.

But compensation is seldom the root cause of sales performance challenges, particularly if you have low voluntary attrition, (i.e. very few people leaving because of compensation.).  Where do we start if we are really going to improve sales performance?

Well, usually, at the beginning…..

It really requires us to understand, “what are the things that contribute positively or negatively to sales performance?”  Understanding these, focusing on the root causes and real issues are the only way we can hope to drive sustained improvements in sales performance.

The issues are very broad….

What’s our corporate strategy and priorities?  Since the sales person is responsible for executing the corporate strategy with customers, we have to be very clear about what that means.  Who should we be selling to?  What is the size/opportunity in those markets, is it aligned with our performance expectations?  What customer experience do we want to create?  How do we create value and differentiate ourselves to the customers?  How do we want to balance performance across the sales function–for example new customer acquisition versus customer retention/growth/account penetration, new market expansion, product line mix, and so forth.

How do we effectively reach and engage our customers?  Actually, this isn’t just a sales question, it’s a corporate question—certainly, we know marketing plays a key role in creating visibility, awareness, interest, and developing demand.  Customer service plays a key role if we want to keep and grow those customers or get positive referrals.  Strategy and product management come into play because we need to develop solutions that solve our target customers current and future (even unanticipated) problems.  And I can go on to each function in the organization, but you get the point.

The “reach and engage” question also has important implications to our overall organization and deployment model—but the way we begin to answer these questions is by looking at how our customers buy.  If we are selling to individuals or small groups, or if we are selling transactional products/services, there are a variety of models—Web sites with shopping carts, the classic inbound approach with SDRs/AEs.  High volume/velocity outbound models with SDRs/AEs.  Complex product/solutions may require overlays and product line specialists to work with account/territory managers.  Complex buying processes may involve a team approach, both with complementary skills and maybe geographic dispersion.  And often, leveraging partners or other channels is the best way to reach customers or to effectively cover the opportunity potential.

These overall design/deployment questions then spawn a number of other issues:  What are the right people, skills, competencies needed to execute the strategy?  How do we recruit, onboard, train and develop them?  How do we maximize the performance of each person on the team and of the organization as a whole?

Then there’s what we do every day, how we engage our customers, perhaps igniting the need to change and initiating a buying process.  We can start with prospecting—are we finding the right customers in the right volumes to support our business requirements?  How do our people prospect most effectively?  What levels of performance do we need, how do we assure they are effectively executing?  Then there’s qualifying those prospects, are we finding high quality deals where customers have a high sense of urgency?  Do we have a sales process aligned with the customer buying process–are we executing the process as well as effectively as possible.  Are we creating value in each interaction with the customer and creating superior business justified solutions to their problems?  Are the customers realizing the value we sold, can we grow that value?  How do we stack up against all the alternatives the customer considers.

But do do these things, our sales people need the right systems, processes, tools, programs, support to execute these as effectively and efficiently as possible.  As the complement to this, we need to understand the road blocks, internal and external that impact performance, doing everything we can do to remove these and maximize performance.

Embedded in all of these is the concept of, what are the expected activities and behaviors, stated differently, what are the performance expectations, we have of our people in doing all these things?  What are the expectations in prospecting, in deal management, pipeline management, value creation, account management, time/territory management?  How have we communicated these to our people and assured they “own” them.  How to we monitor, coach, and develop the capabilities of our people in performing at the highest levels possible?

Oh, and yes, there’s the compensation system.  But designing the compensation plan only makes sense, once you have addressed these other issues.  Then you design your compensation system to reinforce the things that are critical to driving performance.

Our compensation system is an important element in driving sales performance.   Basically, it’s one of the means we leverage to focus people on what we want them to be doing.  But until we know these things, it’s impossible to design the compensation system that reinforces the attitudes, behaviors, activities critical to sales performance.

If we want to improve sales performance, we have to understand all the things that impact performance.  If usually starts with fundamentals, if those aren’t in place, then nothing else will impact them.