2024 Sales Incentive Plan Season: Do You Need a Revamp?
Just like clockwork, the 2024 sales incentive plan season is knocking at our doors. But how can HR leaders and Sales Leadership know if it's time for a change? Here are a few key indicators that you might need to change something – and a reassuring sign that says, "Keep things as they are!"
1. Salespeople are not hitting their quotas
A noticeable majority of salespeople not hitting their quotas isn't just a red flag — it's a blaring siren. While many might argue this is about quota-setting more than the incentive plan, the two are closely intertwined.
Remember, while financial incentives undoubtedly motivate salespeople, the joy of succeeding and "winning" is an equally potent driver. If your team is more familiar with the sting of defeat than the thrill of victory, there's a problem. Constant failures can demotivate even the most resilient salespeople.
In challenging economic landscapes, balancing ambitious targets with realistic sales team quotas is integral to maintaining a strong sales function.
2. Your top salespeople are leaving (and your weak salespeople aren’t)
When your top sales performers start heading for the exit and your underperformers remain unaffected, it's time to reassess. These top performers are the backbone of your sales function and future leaders; their departure is a surefire sign of cracks in the foundation.
3. Your incentive plans are over-complicated
Is your sales team confused about the incentive plan? Phrases like “I don’t understand the plan” or “every time we figure it out they change the plan” are warning signs. It's important to keep the plan clear and simple.
There can be a variety of valid reasons for complexity or plan changes year over year: shifting business expectations, for example, a focus on profitable growth, strategic products, or cross-selling can mandate changes to the plan mechanics in order to align incentives. If this is the case, then those changes should be clearly communicated by sales leadership in the context of shifting business priorities.
With all that being said, much of the complexity that I see in sales plans is not fuelled by business interests, but rather the belief that the sales plan is a panacea for all issues around Sales Force Effectiveness - which it is not.
Consider these misconceptions:
CAPS Expectation: Caps will prevent excessive payouts. Reality: Caps might control payouts in absolute terms, but they discourage your top performers. Alternative mechanisms, such as robust financial modeling, windfall provisions, and decelerated rates, can be more effective in promoting continued sales growth and attracting top talent. After all, if we can create a win-win scenario for the salesperson and the company, why wouldn’t we?
THRESHOLDS Expectation: Thresholds will prevent underperformance. Reality: An underperformer is likely costing the company far more in untapped territory revenue than the cost of their compensation - Paying an incentive to a poor performer should be the least of our worries. Adding thresholds often means creating complexity to reconcile monthly payouts with annual performance. Instead of complicating the plan for many to resolve the issues created by the few, focus on attracting and retaining the right talent.
SUBJECTIVE COMPONENTS Expectation: We can solve poor behaviors with a subjective component or “MBO”. Reality: You’ll probably just end up paying these out at target! Sales incentives should be straightforward. Issues like improper CRM usage or over-discounting should be addressed outside the incentive framework. Fostering a culture where sales managers hold their teams accountable is the way to drive positive changes in behaviors. Bid review and other sales quality assurance should ensure that the right products are going to the right customers at the right price.
And Here's the Silver Lining...
If your sales figures are thriving and the team's morale is high, perhaps there's no need for an overhaul. While innovation is enticing, sometimes the age-old adage rings true: “If it isn't broken, don't fix it”. Introducing unnecessary changes can be counterproductive and maybe disengaging.
Before opting for drastic changes in the sales plan, consider alternative improvements to the sales force effectiveness model. These might range from revised quota-setting methodologies, to updated windfall provisions, updated territory alignment, or, perhaps most powerfully, improved sales manager training.
In conclusion, while the 2024 sales incentive season might be a reminder to reevaluate, remember that the ultimate aim is a motivated, driven, and successful sales team. Adjust your sails accordingly (pun intended)!