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Misunderstanding Comp

by David Brock on June 17th, 2022

I’ve seen some “interesting” discussions around comp plans in the last few days. Basically, a number of them have been around what is preferable, low base as a percent of OTE, up to high base as a percent of OTE.

Some of the discussion was around keeping the based as low as possible, with the idea of “saving money” if people don’t meet their OTE goals. I get it–I guess–but it seems like that mentality is a defeatist mentality. It seems these managers are betting against their peoples’ success.

As managers, we WANT our people to achieve their OTE! We want to provide a full payout to all our people! Assuming we’ve designed the comp plan correctly, having each of our people achieve full OTE payout means they have achieved their goals–and that’s our goal. In fact, we should revel when our people are into their overattainment accelerators–because it means they are blowing past their quotas and over achieving. And, again, assuming we have designed our comp plans correctly, these additional comp payments are self funding with the additional revenue attainment.

Too many managers tend to have a conflicting mindset when we look at goal setting and comp planning. We want to set agressive goals, but we want our people to achieve them. Again, if they do, that means we achieve our goals.

But we tend to look at comp planning in a different way, separating it from goal attainment. We want to manage spend, we want to minimize risk. Somehow we get away from the idea that our goal is to design a plan that incents people to achieve and overachieve their goals. We aren’t seeking to minimize our spending, we are expecting as many people as possible to achieve OTE.

When we design our comp plans, there are a couple of critical elements–all oriented toward having our people achieving their goals, with a full payout of OTE. The first element is what is OTE, stated differently, what’s an affordable direct cost of selling. We expect to, we should be pleased to, pay the full OTE out with every sales person. The second set of design elements are the split between base and variable comp–then how we pay out the variable comp. There is no right answer, these designs vary based on your strategies for what the sales people need to do, and how we motivate them to achieve (overachieve) their goals.

Using comp to “penalize” bad performance is actually a strategy that can backfire badly. Quota attainment is primarily a performance management issue. If our people aren’t meeting their goals, we should be less concerned about the selling expense exposure and protecting our spending, our real concern is the revenue exposure and not achieving our goals–and we manage this through the performance management process.

Be clear about your goals in comp planning. Your goal is to pay out 100% of OTE for everyone. This means they are hitting their revenue goals!

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