Music conductors interpret music scores, set the tempo and bring musicians in an orchestra together, ushering them in and out of the performance as the music plays on. Serving as a messenger of the composition, they drive synergy and bring the music to life.
In the sales compensation process, plan designers act as these conductors of the orchestra interpreting the goals of the sales organization, defining the right mechanics and performance measures in place, and bringing leaders across various departments together to design and implement compensation.
These analytically savvy sales compensation professionals perform an indispensable operational role of devising compensation programs that keeps sellers motivated and sales teams in lock step with organizational revenue goals.
Without them there would be ill-managed compensation plans that can lead to misalignment between corporate objectives and what sales is trying to achieve.
So, who is a compensation plan designer?
A compensation plan designer is an internal consultant with strong expertise in sales performance management having designed compensation programs for several years. Normally sitting in the sales operations department, their primary job is to drive sales performance by evaluating, implementing and optimizing compensation programs.
Here is an example to illustrate:
Imagine a company that has only been selling paints for home interiors for the last twenty years. The owners of the company have suddenly decided to sell floor laminates. The company has about 300 field sales reps most of whom have been in the company for more than 10 years. The sales management team now needs to find a way to get these veterans to sell a new product added to the portfolio. Ever wondered how the incentive program is constructed for this new product?
In comes the compensation plan designer.
This consultant first speaks to sales leadership and tries to understand what the corporate objectives are with respect to the floor laminates. What are the sales goals? What do we want to achieve? They then collect any compensation related data from available internal and external sources on incentivising floor laminate sales.
Working with senior management executes across sales, marketing, finance and HR, they evaluate the cost of compensation and formulate the changes in compensation plan elements like leverage, performance measures, quota, eligibility etc., based on the new product added.
Once approved by management they must develop the implementation strategy. Working with other teammates in the sales compensation team, they make changes to the existing plan the sellers are on. Modelling the outcomes of the new plan, the compensation plan designer communicates the potential impact to sales management and leadership across other departments.
They then work towards rolling out the compensation plan to the sellers in the field. Sales Performance Management solutions provide vital plan communication and approval workflows that the compensation team use to operationalize the new plan.
While the above example describes what the role of the compensation plan designer is, it does not describe how crucial this role is in the whole compensation process. Let us analyze that a little deeper.
A key driver of sales performance
In the above example, imagine if there was no incentive to sell floor laminates. If selling them did not add to the seller’s quota attainment and did not provide any commission, there is a very good possibility that none of the floor laminates would ever get sold.
So, while sales leadership defines the strategic goals for the sales organization, there needs to be a stimulus for the sales team to go out there and achieve them. The sales compensation program is central to providing this stimulus, translating the sales objectives into operational plans. The plan designer defines critical components of this program that connects compensation with seller performance and motivation.
Using the expertise they have gained over designing several compensation programs in the past, plan designers are able to provide valuable insights to help answer some important questions like:
- What are the measures to link to each type of sales job?
- What is the right number of measures?
- What should the quota be?
- How often should sellers be evaluated?
- What are the weights to be added to each measure?
In clearly evaluating and instituting these measures, compensation plan designers help drive the right sales behavior in the organization. It also important to remember that a poorly chosen metric can lead to a poor result.
Maintaining strategic alignment
Sales organizations generally review their compensation plans once a year, performing a health check to ensure that they align and adequately support the company’s vision of growth. This process begins with the plan designer getting feedback on the present plan from senior leaders across organization, sales management as well as sellers in the field, ensuring that everyone is heard in shaping the new plan.
A compensation plan designer also studies the impact various measures have had on performance in the past, so they are clear on what changes to recommend in aligning with the sales goals for the new year.
Sometimes minor tweaks are not enough – a new product line introduced, a new geography added, or a new indirect sales organization onboarded, for example, requires new compensation programs to be designed outside regular plan cycles. A comprehensive study of the internal compensation architecture and assessment of external factors help compensation plan designers build new metrics and measures in place to address this new go-to-market direction.
Providing clarity to sales, finance and HR
Compensation affects various departments across the organization and many of them want predictable and accurate answers to some of the questions they have on compensation. Plan designers act as subject matter experts providing much needed visibility and clarity on the impact of compensation.
Sales management wants to know how each sales job, each territory, each product line for e.g., is going to impact the revenue goals. Plan designers collaborate with leadership in developing base pay, leverage, quotas, eligibility and performance measures influential in driving sales behaviour for each sales job.
Sellers on the other hand want compensation to be clear and easy to understand. Plan designers help define the precise number of measures based on each job’s priorities without causing confusion and distraction for teams in the field.
Finance wants a clear line of sight between cost of compensation and its impact to the top line. They are keen on ‘paying for performance’. Plan designers are instrumental in helping finance understand the viability of the plans in delivering the companies’ revenue goals. They also collaborate to ensure that the compensation practices are compliant with financial regulations.
HR is concerned about setting a competitive compensation that can enable them to recruit and retain the sales force. Plan designers work with HR to ensure that the broader competitive view of the marketplace is incorporated in compensation planning, providing an answer to this question:
- What are the most effective measures in driving competitiveness and minimizing employee turnover?
Driver of collaboration
Compensation plan design can be done by a single sales compensation processional within the company, or an external consultant, or an internal committee with representation from key departments. Irrespective of the construct of the plan design team one thing is for certain – compensation decisions are made collaboratively between executives of various departments including sales, finance, HR, marketing and operations.
But the challenge is that each department head has their own point of view on how the compensation plan should be designed and what performance measures should be used. Conflicting point of view and inherent bias can result in a sub-optimal plan design. Plan designers help steer these conversations, bringing all the stakeholders together, and provide key insights on how different measures drive behavior and impact performance, helping them remove ‘gut feel’ and make a unified, informed decision.
Implication of faulty compensation design
What happens when compensation plans are designed without the expertise of a compensation plan designer?
Without the well-designed compensation plan, sellers in the field might not be aligned with the corporate objectives the executive team is striving to achieve. Imagine for instance, a seller aligned to a territory that is price-sensitive with high customer churn, and the compensation plan he is on has too much weightage on retention. Even if he was bringing a high volume of new business, he might risk his commissions by not hitting the threshold for retention. Misaligned plans very quickly lead to seller demotivation and churn.
What is even more scary is that these plans can end up driving risky sales behavior that is not in the best interest of the customer. In February 2020, Forbes cited that Wells Fargo agreed to pay US$3 Billion to settle its long running ‘fake account’ scandal which was brought about by incorrect measures aimed to achieve aggressive and unrealistic sales goals.
Compensation design is a high-impact, high-visibility process that needs specialist expertise in the form of a compensation plan designer who lives and breathes compensation. These subject matter experts are critical in providing clarity and insight to all stakeholders involved in the compensation process.
Starting from the corner office, through leadership across sales, finance, HR and marketing, compensation designers help drive operational efficiency by bringing leaders together in concurrence on how compensation is measured and administered to drive sales success.