Beware the “Frankenplan” — The Worst Mistake in Sales Comp Design
Think of a sales compensation program as the “invisible hand” of the sales organization.
The program uses incentives to guide rep behavior, align individual goals to corporate goals and communicate explicitly (or implicitly) where reps should focus their efforts.
Put simply, sales compensation is a powerful means of influencing sales rep behavior on a broad scale to reach corporate goals.
The challenge of sales compensation is that organizations rarely have the internal expertise or know-how to develop and maintain an effective program.
When designing their programs, organizations tend to fall into “bias traps” that lead to suboptimal results.
The Number One Reason Your Sales Compensation Program is Underperforming
One of the biggest causes of underperformance in a sales compensation program is the lack of company context in the design of the program.
During the design phase, many design teams fail to consider the uniqueness of their corporate goals, go-to-market strategy, sales team culture, and the composition of the sales team as guiding principles in the design process.Organizations that fail to incorporate their unique company context into the design of the sales compensation program are more likely to end up with a "Frankenplan." Click To Tweet
Rather than incorporating the organization’s unique context into the program, design teams rely on industry benchmarks — in other words, their competitors’ compensation programs — or adopt elements of past programs they’ve developed which leads to the derided “Frankenplan.”
The lack of consideration for company context results in organizations failing to achieve the desired return on investment of sales compensation and increased risk of missing the annual number.
What is a “Frankenplan” — and Why Should You Avoid It?
Here’s how a “Frankenplan” typically arises at an organization.
A new sales leader joins an organization and with them, they bring a playbook that has proven successful in the past. One of these playbook items is often a sales compensation program that historically generated strong results. These plans are typically directionally sound but lack the context of the new company.A "Frankenplan" is the result of combining multiple sales compensation program designs together without considering the organization's unique context, such as the go-to-market strategy, sales team culture, and corporate goals. Click To Tweet
As the new leader attempts to impose their playbook on the current program, existing leaders in Finance, HR, and Sales will attempt to preserve elements of the existing compensation program.
At this point, there’s no turning back.
Due to people’s tendency to resist change — combined with a “culture of compromise” — the leaders will land on a bloated program that incorporates elements of both parties but fails on all other counts. The resulting “Frankenplan” has everything and the kitchen sink.
Chances are, the “Frankenplan” will be too complicated to properly motivate reps, and too diluted to make a marked impact on performance.
Moreover, this type of compensation program fails to do its job because it lacks any consideration of the organization’s current corporate context.
Do you have a “Frankenplan”?
The top scenarios that lead to a “Frankenplan” are…
- A new sales leader joins the organization and makes a “compromise” with existing leaders when designing the plan. Simultaneously, there is little consideration of company context or data-driven insights.
- The existing sales compensation plan hasn’t been rationalized in the last 2-3 years. Each year, leadership incorporates new elements into the program but is often unwilling to take things out because “reps like it.” Over time, the program develops into a “Frankenplan.”
“Frankenplans” tend to be complicated and confusing, incorporating far too many compensable factors to properly direct rep behaviors.
Sales compensation best practices and behavioral economics would indicate that sales reps are more productive when they are dividing their efforts across no more than three goals or plan measures.
If a sales compensation plan has more than three measures, it’s likely too complicated and more often than not, a “Frankenplan.” The amount of money invested in each measure is null when the effort is diluted across far too many measures for an individual to prioritize.
The Antidote: Corporate Context
Egos, resisting change (without data to back it up), and making compromises rather than data-driven decisions will lead to a suboptimal sales compensation program.
In order to overcome the biases that lead to a “Frankenplan,” you must emphasize the organization’s unique corporate context as the guiding principle of program design.
This means incorporating the following into your plan design:
- Strategic corporate goals
- Go-to-market strategy
- Competitive landscape
- Length of selling cycle by segment
- Rep prominence or control of the deal
- True business drivers of success
- Composition of the sales team
- Simple vs. complex sell
- Sales team culture
- Pricing strategy
Corporate context ensures that the compensation plans are kept simple and focused on what truly matters to the company’s success. With this approach, it should be clearer to the design what three or fewer plan measures will best direct and motivate individual selling roles.
If not a simpler and more succinct compensation program, corporate context may signal whether an additional selling role or change in the go-to-market strategy is necessary to accommodate an effective sales compensation program.