Reward Behaviors: The Coming Shift in Compensation Management

Reward Behaviors: The Coming Shift in Compensation Management

By Chris Bucholtz

Who here likes math problems? If your hand isn’t raised, I’m with you – there’s nothing I dislike more than crunching numbers. That’s why I’m glad I’ve never had to manage a compensation plan, especially using the old approach (e.g., manually, or with simple spreadsheets). Even accountants are glad those days are gone and that compensation management software now makes computation of commissions a straightforward and simple thing.

Compensation management lifted the burden – but for many companies, relief from commission woes was so significant that their thinking about compensation stopped there. Once the drudgery of computing payments – and managing the conflict around disputes about payments – evaporated, companies could become satisfied, complacent, and stop thinking about commissions. That’s a common phenomenon with business technologies: Yes, they solve the immediate pain point and let companies do something they’ve always done in an easier way. But in many cases they also open up new options that never would have been possible in the days of manual processes.

Sales compensation is one of those cases. Thinking is slowly changing about how compensation should be paid. Should it all be about deals – or should they consider performance? Is revenue the top consideration, or should profitability be rewarded instead? And should sales reps adjust their behaviors to emphasize other aspects beyond simply getting signatures on contracts?

Making your quota is always going to be a critical part of how sales people are paid. But new considerations are beginning to capture sales managers’ imaginations. Here are three behaviors that sales reps will increasingly be compensated on in the future:

Sell with the renewal in mind

In the subscription economy, your customers are good to acquire, but they become extremely lucrative when you keep them. The first term of a contract includes a lot of on-boarding, provisioning, training and other investments by your company. When the customer renews, your margin jumps significantly. That means real dollars in the company’s coffers. According to Karl Stark and Bill Stewart, a business that can retain all of its customers by just one additional month can achieve an additional 3 percent of annual growth. If it can retain its customer base for four additional months, it can create double-digit growth without acquiring a single new customer.

The sales rep who closes the initial deal can have an enormous impact on whether a customer renews or whether he jumps ship at the first opportunity. Twisting arms to get a signature isn’t as valuable a tactic as it once was, because it leaves the customer feeling like the loser in an adversarial confrontation and primes them to bail out at the first opportunity. Sales reps must be true partners during the sale. But how do you compensate them for customer behavior that will happen in the future?

Simple. Seek feedback from customers about their experiences, and then factor their responses into the comp plan. Make sure the feedback is solicited by a third party – the sales rep shouldn’t beg for positive responses that put money in his pocket. Reward those individuals who create good experiences – and analyze the feedback in aggregate to look for areas of systemic improvements to your sales process.

Sell using the technology tools at their disposal

We spend a lot on technology, from CRM to marketing automation to social media tools, to help sales reps learn more about their customers. This investment makes sense in light of what these tools can do – but it makes no sense when your sales reps refuse to use them. Yes, plugging data into CRM may seem like a burden to the rep, but it’s a necessary task for the health of the organization, because without that data sales management can’t provide proper leadership, customer insight and sales forecasting to set reps up for success.

The same goes for any other technology. Sales reps respond to compensation as a motivation, so include a component of the compensation package that rewards them for using these productivity tools. They’ll be more inclined to use them, which could lead to increased productivity and sales, which leads to increased commissions. It’s a win for the top line, and a win for the sales rep, and a major win for the leadership who OK’ed the technology investment.

Sell as a team with marketing

“Sales and marketing alignment” is a hoary, worn-out expression by now. It refers to a complete teaming of sales and marketing toward common goals and objectives, but it seems like an organizational hurdle to many managers. Alignment doesn’t have to be onerous; it can start small, with the lead management process.

Every sales funnel has its leaks, but some are leakier than others. Leads may be passed to sales reps who simply fail to get to them, who only contact them once or twice, or who simply sandbag and hold them over to next quarter after achieving this quarter’s number. Every form of “leak” represents a wasted expense; you don’t get leads for free, after all.

If you’ve designed a lead flow process, this shouldn’t happen. Leads that aren’t getting worked need to be returned to marketing for redistribution or nurturing. If a sales rep discovers a lead is never going to buy, that needs to be communicated as well.

A compensation plan can include a “bounty” on leads – every lead that a sales rep has should be accounted for, and reps that make sure leads are where they ought to be should be rewarded for them. Leads that go missing – the ones that “leak” – should be held against the rep. If reps are motivated, then marketing can do its job more effectively, feed leads to reps with the bandwidth to work them, and continue to nurture leads.

These three ideas may sound like things sales reps should be doing already – but many don’t. Some reps may complain about a change to their comp plan that de-emphasize total sales numbers, but they should be reminded that engaging in these behaviors will result in a more successful business and, in the end, reward them with bigger commission checks.

About the author

Chris Bucholtz is the content marketing manager at CallidusCloud and writes on a host of topics, including sales, marketing and customer experience. The former editor of InsideCRM, his weekly column has run in CRM Buyer since 2009. When he’s not pondering ways to acquire and keep customers,Chris is also an avid builder of scale model airplanes.

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  • Posted by Lanshore
  • On March 29, 2015
Tags: commissions, management, solutions, SPM