The Complete Guide to Sales Compensation in 2023
Companies today are getting lost in the sales compensation maze. The tech stacks we pull data from are expanding, deal volume is increasing, and compensation is becoming more sophisticated. Sales compensation — especially for enterprise companies — can be messy without the right tools and expertise.
Leaders spend months crafting the perfect compensation plans, yet their teams still feel like their bonuses are random. The math seems like a mystery that managers arbitrarily decide on, and employees (understandably) never seem to know whether the team is on track to hit quota.
Because variable compensation is rarely transparent for employees, they start viewing mistakes and setbacks as threats to the very bonuses that sold them on the job in the first place. Luckily, sales compensation management has entered the chat.
This guide will show you how managers, payees, and employees can finally get the data-driven compensation transparency they’ve been searching for. You’ll learn how to build the perfect plan for your team and how to use tools that streamline payouts. We’ll cover automated sales compensation tools and strategies that decrease payout errors and reduce time spent on payroll administration.
The Complete Guide to Sales Compensation
- What is sales compensation?
- What is the purpose of sales compensation?
- Best Practices for Creating Sales Compensation Objectives
- How To Develop an Effective Sales Compensation Plan
- The Four Elements of Sales Compensation
- The Top Three Sales Compensation Methods
- What is Sales Compensation Management?
- The Objective of Sales Compensation Management
- The Most Common Types of Sales Compensation Plans/li>
- Top Sales Compensation Software
- What is a Sales Compensation Analyst and What Do They Do?
- How Does Sales Compensation Software Improve Sales Operations?
What is Sales Compensation?
Your sales compensation plan determines how to reward salespeople based on how much revenue they generate, how long it takes to close deals, and how risky the deals are.
Unfortunately, compensation plans are highly complex because leaders must tailor them to the company’s needs and sometimes even the individual rep. The purpose of a sales compensation plan is to motivate salespeople to achieve business goals, but it can also serve as a management tool.
One of the most common compensation structures is “variable compensation,” which is pay given to an employee based on the results they produce. It is usually offered on top of a fixed salary and comes in various forms.
Sales Compensation Explained
Variable sales compensation rewards top-performing reps for reaching a specific sales goal or target.
Many sales teams, including software companies, manufacturing firms, and B2B organizations, choose this compensation structure to motivate salespeople to close more deals.
The type of product or service you sell plays a role in determining what type of sales compensation plan you should implement. Many components go into creating a sales compensation plan, including
1. Base salary
A base salary is a predetermined amount of money you pay your employee each month, regardless of performance or revenue generation. Base salaries are usually established on a sliding scale depending on the role and seniority within an organization.
Sales commission is practically synonymous with sales careers. Commission is a portion of revenue (usually in addition to the base salary) given to the sales employee as part of an official compensation plan. Some sellers work entirely on commission.
3. Profit-Sharing Plan
This plan gives employees a portion of the company’s quarterly or annual profit in addition to their base salary.
Bonuses are an extra lump sum given to employees based on the company’s performance. It’s often an unspecified amount annually and will vary depending on the year’s results.
5. Stock Options
This option gives employees the right to purchase shares in the company under certain circumstances. They are sometimes offered as an alternative to cash compensation and are popular with startup companies with ambitions of going public or being bought out.
Why do employers offer variable compensation?
A variable compensation plan aligns salespeople’s daily activity with company objectives. Sellers understand that meeting the company’s targets will result in better commission checks, so employers offer commissions to motivate sales reps to produce better revenue results.
What is a clawback in sales commission?
It also helps employers attract top salespeople who want their ability to create value reflected in their paychecks. The best sales reps pride themselves on their ability to control their income based on performance. Flexible compensation allows them to do that.
The Advantages of Variable Sales Compensation
Variable compensation plans (VCPs) provide several benefits. First, they’re an alternative to traditional salary and fixed salary plans, which are the norm for other employees and departments.
1. Empowering Employees to Hit Revenue Targets
VCPs put revenue-critical employees in the driver’s seat regarding their incomes, giving employees more control over their pay. In this way, VCPs reward employees for outstanding performance while offering cost-effective compensation.
2. Increases productivity
Performance-based pay gives employees an incentive to improve their performance. If the comp plan is not effectively incentivizing certain behaviors (revenue, user growth, etc.), then the plan hasn’t been built correctly.
3. Employee engagement and retention
Companies with attractive compensation plans tend to attract competitive self-starters who are confident they can reach company targets and make a good living. In addition, when companies pay employees well and feel that they reward them for their efforts, they’re more likely to stay.
4. Financial flexibility
VCPs also give business owners more control over the compensation plan. For example, flexible pay allows employers to pay employees after they have generated revenue. That means that employers don’t need cash to pay new reps upfront. It also helps to align expenditure with income. Flexibility also benefits business owners when they need to change the base compensation or require employees to meet specific performance metrics to earn additional commission.
What is a sales accelerator?
The Disadvantages of Variable Sales Compensation
While a variable compensation plan can be a great way to incentivize salespeople and keep them motivated, there can be disadvantages to offering this type of plan. For one, setting up the correct parameters for the project to be fair and equitable for all involved can be challenging.
Plus, if the goals are too ambitious or not achievable, it can lead to frustration and poor morale among the sales team. Finally, if the plan is not well-structured or monitored, it can lead to salespeople taking risks or cutting corners to reach their goals. As such, companies should carefully consider all of these potential drawbacks before implementing a variable compensation plan for their B2B salespeople.
The most common sales compensation planning pitfalls are:
1. Poor Execution
Effective comp plans are complex to create and difficult to administer because they’re usually manually managed, even by large enterprises. Multiple stakeholders also make setting the measures of performance and goals difficult.
2. Lack of foresight
If goals are unattainable due to poor planning, sellers will quickly get frustrated and search for other opportunities. Companies that offer commission-only salaries often struggle to attract or retain sales talent. Even though fixed wages may not directly increase sales performance, they provide employees with a safety net. A combination of fixed and variable income is the best way to motivate employees effectively.
3. Not ethically aligned
One major disadvantage of variable compensation plans is that they can encourage sales representatives to engage in unethical behavior. For example, a salesperson who is paid a bonus for each new client they bring in might resort to misleading tactics to get a prospect to sign on the dotted line. Or an account executive who is paid based on the number of products sold may fail to inform customers about the actual costs of the products or may even oversell, i.e., sell more products than the customer needs or can use.
What is a sales accelerator?
Should I Offer My Employees Variable Compensation?
Despite the effectiveness of variable pay, the plan is not easy to manage. The two most significant issues companies face are sales management’s inconsistent application of the compensation plan throughout the organization and the disconnect between employee performance assessments and compensation rewards (SHRM).
In other words, variable compensation programs can motivate employees and achieve superior business performance, but you must administer them correctly to be profitable. Administering comp plans correctly means ensuring targets are clearly defined, achievable, and aligned with broader business objectives.
What’s the Difference Between Sales Incentives and Sales Compensation?
Sales compensation and incentives both refer to rewards companies use to motivate their sales teams. The critical difference between the two is that sales compensation is a type of monetary incentive, while incentives are variable and can be used to reward high-performance levels.
Companies may use a combination of fixed salaries, variable payouts based on performance, and long-term incentive plans such as stock options or profit sharing. Ultimately, companies must tailor their compensation plans to the specific needs of each organization to ensure that it motivates employees while also helping to achieve company goals.
|Sales Compensation||Sales Incentives|
|A salesperson receives a fixed amount for meeting specific performance goals. Sales compensation usually includes a base salary, commission, or a combination.||Rewards are given to the salesperson when they reach specific targets or milestones. These may include trips, bonuses, or other forms of recognition. Sales incentives are often cash awards but can also be non-cash or non-monetary awards like gift cards, coupons, or tickets to sporting events.|
What Is the Difference Between Compensation and Commission?
Compensation is the fixed amount of money an employee receives for performing specific job duties. Compensation is usually a set amount regardless of how much the individual contributes to the company’s revenue.
Commissions, on the other hand, are performance-based payments. Companies pay commission on a percentage of revenue the individual generates.
Sales compensation plans must align the interests of the sales force with the interests of the business. For example, a sales person may receive a base salary and additional pay for meeting or exceeding their sales quota.
On the other hand, a commission is a percentage of the total amount of sales generated and is paid on every deal. So, for example, if you earn 3% on all sales generated, you would earn $300 on a $10,000 sale.
|Sales Compensation||Sales Commission|
|Compensation is the total amount of money a salesperson receives for their work, including a base salary and any additional compensation for sales incentives or bonuses.||Commission is a portion of the company’s sales price paid to a salesperson for each item sold.|
What Is the Purpose of Sales Compensation?
Simply put, sales compensation motivates employees to produce more. Incentivizing employees to boost performance is effective, but many poorly planned sales compensation plans ultimately do more harm than good because of false assumptions and unrealistic objectives.
Like any great coach will tell you, the fundamentals must come first. Sticking to these pillars will ensure you never drive the wrong behavior or outcomes. The following are the fundamental sales compensation plan objectives that should underpin any good program.
1. Boost individual salesperson performance
Whatever other objectives you may include in the compensation plan, this is the number one goal of all incentive plans.
While many companies will have their own long-term strategic goals (more on those below), it’s essential not to forget that the core reason to incentivize is to increase the number of sales that the individual sales representative closes above the baseline.
If your plan isn’t incentivizing closing more deals, you should just put them on a base salary and save yourself the time and hassle of administering commission-based pay.
2. Align individual actions with organizational goals
Enterprise growth strategy is a constant balancing act—and compensation is a crucial lever. Your sellers will naturally focus on the short-term goals that yield a quick payout. However, you must ensure that their actions result in a fast payout and meet your company’s long-term goals.
Many sales leaders fail to realize that poorly planned short-term sales goals can undermine the business in the long term. While these plans result in quicker results, in the end, they reduce profitability in other facets of the company.
Short-term goals may involve:
- Sales quotas
- Profit targets
- Strategic milestones related to product use, channel or account growth, etc.
- Internal ratings or customer feedback scores
Long-term strategic goals for the business may include:
- Strategic changes to the customer base or the pipeline
- Sustained cash flow
- Incremental profitability
- Improved employee retention
- Increased market share
- Greater shareholder value
- The introduction of new or refreshed products or services
3. Retain top performers
Finding top talent is rare, and losing them costs more than just the cost of replacement and retraining (which is high enough as it is). But, despite what many sales managers might think, there are steps we can take to stop our best people from seeking greener pastures.
Most salespeople leave because of compensation plan issues. These issues aren’t just about their potential earnings but also the speed and accuracy with which they’re paid. If your team regularly deals with sales commission disputes and errors, it will cause a massive drag on your sales organization.
How to Reduce Sales Commission Disputes
Best Practices for Creating Your Sales Compensation Objectives
All compensation objectives should be operational, controllable, measurable, and transferable. The problem is that some organizations make their sales objectives so complex that they strain resources, making it impractical to administer the incentives and operate the program. That’s why it’s best to simplify payout plans.
Overly complex compensation plans can quickly become expensive and impractical to operate. So, simplify your commissions to keep them cost-effective and easy for you and the sales ops team to perform. Or invest in sales compensation automation software.
To be controllable, your sales objectives must be within the control of the people you intend to incentivize. Demotivating the sales team by setting an impossible commission target will adversely affect their performance. Your salespeople should be able to control whether they reach their goals.
It’s also essential to ensure management has levers to control the compensation plan during unexpected sales events. For example, commissions on some products and services can quickly get out of control in extreme circumstances.
This may seem obvious, but objectives must be measurable. Ensure you can easily tie the outcomes to the objectives at the end of the sales cycle to reduce sales commission disputes.
The final important thing to remember is that your plan should be easy to communicate. If your sales reps don’t understand how to maximize their compensation, you will demotivate them, and sales will rapidly drop.
Incentives Make Objectives Subjective
Sales force compensation aims to tie your business objectives to the success of the individuals most able to impact them. Keep that in mind at all times, and you’ll go a long way to designing a winning sales incentive compensation plan.
14 Tips for Designing a Winning Sales Compensation Plan
How To Develop an Effective Sales Compensation Plan
Sales compensation is an integral part of an employer’s total compensation package, including the salesperson’s salary and commissions and other benefits such as health insurance, retirement contributions, and paid time off.
When creating a sales compensation plan for your company, there are several vital points to consider. First, you must determine the plan’s structure and how to implement it. This includes deciding what commission or bonus structure you will use and how you will track and measure performance.
Also, consider which incentives you’ll offer to reps and how you’ll reward them for achieving goals. Finally, don’t forget to ensure that the compensation plan is fair and equitable for all sales representatives.
The Four Elements of Sales Compensation
Sales compensation is an essential topic for all salespeople. You need to understand the four elements of adequate sales compensation, how they affect each other, revenue, and overall profitability.
The four elements of sales compensation are:
- Compensation for time worked (salary, shift differentials, overtime, commission, and benefits)
- Compensation for work performed (hours worked, total pay, gross pay)
- Compensation paid for input into the sale (bonus pay, profit sharing, commissions, and commissions based on volume)
- Compensation earned based on performance (targeted, incentive, and commission)
Compensation is the sum of all these elements. If one element is changed without the others being affected, then the total compensation for a particular sales personnel will change. For example, SPIFs or holiday bonuses that don’t occur consistently.
How to Avoid Perverse Incentives in Your Sales Compensation Plan
The Top Three Sales Compensation Methods
1. Performance-based pay
The salesperson is compensated based on the actual results they achieve. These are often called “commission-only” sales jobs. The compensation might be a specific dollar amount, or it might be a percentage of the sale.
2. Salary plus commission
This method combines two elements of compensation: a base salary and a commission on sales. The base salary is paid regardless of performance, and the commission is paid on top of that.
3. Hybrid incentive plans
This method combines elements of pay-per-performance and salary plus commission. For example, a salesperson might get an initial base salary and a commission on sales over a certain threshold.
What is Sales Compensation Management?
The concept is simple: variable compensation rewards employees for meeting specific sales goals, making it a powerful way of motivating your sales team to sell more products or services. The more they sell, the more money they make.
Don’t let the simplicity fool you—incentive-based pay (commission) motivates better performances, and science proves it. According to Yale and Harvard research, bonuses increase productivity.
The more often bonuses are given (quarterly versus annual), the more revenue they generate. However, this study also concluded that the further salespeople are from their quota, the more likely they will give up.
That’s why the way you structure and manage your sales incentive compensation plan is critical. This post will explain sales incentive compensation management plans, how to successfully roll them out to your team, and how to optimize your plan to crush your goals.
The Objective of Sales Compensation Management
The primary goal of sales incentive compensation management is to create an effective and efficient rewards system that motivates your team to hit their goals. Therefore, you should design your sales incentive compensation system to reward performance, spark your team to reach their targets, and recognize top performers.
An effective incentive compensation program should also be flexible enough to accommodate changes in the market, customer needs, and pivoting sales strategies. A successful compensation program aims to align the interests of your company, customers, and employees so that everyone benefits from increased sales and profits. Companies can also use incentive programs to recruit top talent and retain high performers.
Use the following objectives to develop and maintain an effective compensation plan:
1. Boosts individual salesperson performance
Sellers work harder when their companies reward them for their efforts. When comp plans tie bonuses and commission checks to specific goals or milestones, it gives salespeople a sense of purpose and direction, increasing their productivity. In addition, by creating a competitive environment where salespeople compete against each other for rewards, you’ll drive up individual and overall team performance.
2. Aligns individual actions with organizational goals
If salespeople have a stake in the company’s success, they’ll be motivated to make more sales. Add a facet of your comp plan that encourages teamwork and motivates sellers to generate overall revenue rather than just focusing on their individual goals.
This sales compensation model is called a” team-based” plan. Team-based incentives reward sellers based on the entire sales team’s results rather than individual performance. Team-based incentives encourage collaboration and communication while pushing sellers to share best practices and develop strategies that make the team and company successful.
3. Retain the best salespeople
The goal of building a top-performing sales force should be retention — not just recruiting new talent. A strong compensation plan can prevent turnover by incentivizing top performers to stay with your company. To retain top performers, ensure your compensation plan matches or exceeds industry benchmarks.
How to Motivate a Team Without Money
The Most Common Types of Sales Compensation Plans
There are near-infinite ways to structure a sales incentive plan, but they generally fall into one of the following categories.
This type of sales incentive compensation plan rewards employees with a percentage of their total sales once they reach their goal (e.g., 10% after each sale).
Employers and employees prefer this type because it incentivizes the salesperson to close higher-value contracts.
This type of incentive compensation plan offers an additional bonus if the employee reaches their goal within a specific time (e.g., $500 after completing ten sales in two weeks).
This type of plan encourages sales volume over sales value. So, naturally, this type is more common in sales environments with high velocity and generally low contract value.
Hybrid plans combine quota, time, and other incentives into one plan to optimize for urgency and contract value (e.g., 5% commissions on all first 12 days’ worth of sales; then earn 1% commission every day after that).
This type of plan can be adapted to suit a range of companies, including those with high sales volume and low contract value or where there is an established need to drive urgency (e.g., in the case of limited-time offers).
This compensation plan gives individual employees incentives outside their normal commission on completed sales. For example, spiffs are short-term individual incentives given as a reward for specific actions and sales.
The Sales Incentive Compensation Management Cycle
Sales incentive compensation management is the process of planning, tracking, and controlling payouts. Sales Incentive Compensation management is part of a more extensive set of processes that make up the overall management of a company’s sales force. These processes include recruiting, selecting, training, and compensating the sales force.
5 Sales Compensation Planning Pitfalls to Avoid
The sales incentive compensation management cycle has the following four stages:
The Four Stages of Sales Incentive Compensation Management
1. Planning for sales incentive compensation management
Planning is an essential first step. Sales managers create budgets for the future year and decide on appropriate staffing levels for each year based on their forecasts and available reports.
Incentivize employees to meet performance objectives by aligning pay with performance goals. The goal is to find the right balance between risk and reward based on each employee’s responsibilities within the organization.
Think of yourself as a conductor and your sales incentive compensation plan as your control levers. You will only get the desired sales behavior if you pull the right levers. In this case, your levers are commission structure, quota, territory, bonuses, benefits, and other incentives. Together, these elements make up the design of your compensation plan.
2. Administering the sales incentive compensation
Day-to-day administration (aka the delivery) of your incentive compensation is just as important as its design. SalesOps or Finance usually owns administration. Each of these units has priorities that will inform its approach and methodology.
Overall, the goal of any incentive compensation administration team is to give accurate, timely commission payments, make plan optimizations quickly, and support data architecture that enables automation.
The quality of your sales incentive compensation management software, your processes’ integrity, and your admin team’s skills will ultimately determine the quality of your incentive plan.
3. Tracking sales performance
The sales performance tracking stage involves measuring and analyzing sales performance to spot areas of improvement and ensure that sellers are reaching their goals. During this stage, management pulls data from different sources, including customer surveys, sales data, and competitor analysis.
The team then analyzes the data to gauge how well each salesperson performs against their targets and identify improvement areas. The team then uses these results to adjust compensation plans accordingly and ensure that each salesperson is incentivized properly for their performance.
The Two Deadly Sins of Sales Compensation Planning
4. Monitoring & Optimization
Once you’ve deployed your compensation plans and established a robust day-to-day administration process, it’s time to take the stats you’ve collected and find ways to improve your program.
Optimization lives or dies by the accuracy and timeliness of your data, the quality of your reporting, and your team’s ability to act on the insights they get from reports. Unfortunately, few companies can consistently and accurately optimize their plans.
Most companies hit a snag at the optimization stage because of the software they’re using. The scenario usually goes like this: An analyst requests a slight change in the plan. Then, the administrator goes to implement it, but the ICM software cannot configure the shift. Or, they discover that making this one small change will mean rebuilding the rules governing the compensation plan calculations, which can take weeks. This is the opposite of rapid optimization.
Top Sales Compensation Software
Using software to accurately facilitate compensation management and sales incentive plans is a no-brainer when you realize how much effort is involved. Sales compensation software gives businesses a streamlined, automated way to administer compensation plans, calculate commissions, and model scenarios to make better compensation decisions.
Buying the wrong Incentive Compensation Management (ICM) software could leave your enterprise frustrated by unnecessary manual admin, frustratingly slow changes, and costly lost opportunities. Conversely, choosing the right ICM solution for your business will put you years ahead in growth, rep retention, engagement, and resiliency through increased agility.
The right software tools allow sales teams to track their performance and earned commissions to date. In addition, compensation platforms increase transparency and eliminate the need for shadow accounting. When the compensation plan is reliable and transparent, reps become even more motivated about their earning potential.
We wrote a detailed post about the best sales compensation software for any business here.
What is a Sales Compensation Analyst and What Do They Do?
Sales compensation analysts play a vital role in helping b2b companies succeed by ensuring their sales representatives are correctly incentivized and motivated. The sales compensation analyst’s primary function is identifying sales compensation trends to help managers optimize the company’s payroll and benefits programs.
Sales compensation analysts help manage their companies’ budgets by determining how much money to allocate to each employee, what type of benefits to offer, and how much to pay in commissions and bonuses. They also determine how much each employee should make to be competitive in the marketplace and the cost of turnover.
Depending on the organization, sales compensation analysts are also known as:
- Sales compensation analysts
- Sales compensation administrators
- Sales compensation associates
- Sales commission analysts
- Sales commission administrators
- Incentive associates
- Sales incentive analysts
Organizations with fewer than 1,000 employees are unlikely to employ a sales compensation analyst, as that responsibility falls to the HR, Finance, or Sales Ops departments. However, scaling and complexity increase the complexity of a company’s sales compensation program, necessitating hiring a compensation specialist.
What Does a Sales Compensation Analyst Do?
Sales compensation analysts have a variety of administrative responsibilities that include supporting sales commission plan implementation, maintaining commission records and the Incentive Compensation Management (ICM) Software, validating monthly payments, data management, analysis, and reporting. They also actively handle daily incoming inquiries and commission disputes from the sales team.
Sales Compensation Analysts vs. Compensation Professionals
Sales compensation analysts design and administer the sales incentive program. Compensation specialists then take that program and ensure the company’s broader compensation strategies align with its business objectives, company culture, and pay philosophy.
Compensation professionals calculate overall employee pay, maintain databases about how much people make in different roles to ensure equity, and produce job descriptions that reflect the skillset and pay ranges for new hires or promotions.
They will also benchmark compensation rates to keep on-target earnings (OTE) competitive, coordinate performance reviews, and manage separation packages.
Compensation professionals’ and sales compensation analysts’ career paths are increasingly intersecting, taking on a more strategic role in aligning overall performance and company goals with pay.
|Sales Compensation Analyst||Compensation Professional|
|Manage and administer the sales incentive program||Ensure the company’s broader compensation strategies align with its business objectives, culture, and pay philosophy|
|Must understand how sales compensation plans are used to drive performance and how they tie in with sales strategy and business objectives||Calculate overall employee pay, maintain databases to determine how much people make in different roles to ensure equity, and produce job descriptions that reflect the skillset and pay ranges for new hires or promotions|
Is Sales Compensation a Good Field to Work In?
The job market for compensation specialists has recently grown as companies are increasingly pressured to comply with corporate governance regulations and keep up with the demand for accurate performance data.
Compensation professionals who want to remain competitive must continue learning about industry trends to create compelling and effective sales compensation programs. Sales Compensation is one of the essential departments in any organization as it helps determine how much each employee will earn based on their performance.
The right plan motivates sales professionals to perform at higher levels, resulting in increased productivity, sales, customer loyalty, and profits.
With the performance of the business directly related to their work, the visibility and prestige of the role make sales compensation analysis a promising career. However, while compensation professionals often get paid more than Human Resources or Administrative professionals, the role usually comes with more pressure.
How Much Do Sales Compensation Analysts Make?
Salary.com says the average entry salary for a Sales Compensation Analyst in the US is $62,090 but ranges between $55990,890 and $67,690. Senior sales compensation analysts and managers regularly make more than $100,000.
Salary ranges vary widely depending on education, certifications, responsibility level, additional skills, experience, and tenure. However, experienced sales compensation consultants and function directors can command significantly more—anywhere from $200-$500 per hour.
The Hard Truth About Sales Compensation Analyst Jobs
While sales compensation analysts’ career prospects and income seem promising, the sales compensation field is challenging and demanding.
Compensation professionals are responsible for tedious data entry, basic administrative tasks, and wrangling clunky and confusing software. On top of the workload, they must be adept at dealing with endless streams of commission disputes and queries to manage, often from frustrated salespeople.
Despite the often silently Herculean effort that sales comp admins expend getting to payroll on time, their job can be thankless.
“A Nightmare:” The Payroll Treadmill
In a revealing interview for Hubspot and the Cornerstone Software Blog, a sales compensation analyst reveals what life is like for a sales comp admin.
“Commissions that are not system-generated are a nightmare…I first had to pull the data from our sales transaction system and export it into a massive spreadsheet (about 6,000 lines per month). Then I had to sort through it and create a spreadsheet for every commissioned employee.”
He continues, “The break-out alone was tedious — having to ensure sheets were formatted correctly and ensuring all the sales data was complete. I had to manually enter write-offs and pull out non-commissionable sales under a certain gross margin.”
And the Quality Assurance process? “A spot check.”
That process typically takes up most of the sales compensation team’s time, with the rest spent handling regular disputes, rectifying errors, and processing approvals. And when they finish, it’s time to start compiling data.
So much time is spent on relatively low-value task work that there is little time for the sales compensation function to perform its higher-value, strategic work: the continuing improvement of sales incentive plans. We call it the payroll treadmill.
Divided Responsibility = Elusive Impact
While Incentive Compensation Management (ICM) software puts you light years ahead of companies using manual processes and spreadsheets, problems arise when there are too many cooks in the kitchen.
The problem is a single business unit rarely owns sales compensation design and admin. While sales comp professionals are responsible for daily sales comp processing, they’re not responsible for incentive plan design, which is often managed by a mix of Sales, Finance, HR, Exec, and Operations leaders.
The role of sales compensation analysts is to produce the data that guides planning and communicate to the planning committee how changes to the plan will impact the business. This is usually a painful process that takes stakeholders months to accumulate the data they need to insert their priorities into the plan.
How to Create a Winning Data-Driven Sales Strategy
That delayed process means planning begins with two or three-quarters of the data at best and must be adjusted later in the year as a complete picture of performance forms. The lack of ownership and reliable data results in poor plan design and, ultimately, poor business performance.
When they finally send the plan to Sales Compensation admins, it will frequently be sent back for revisions because the design committee didn’t consider the limitations of their ICM software or the impact on the program logic during design.
Even when implementing the plan is possible, doing so will involve either a significant overhaul or a complete rebuild of the logic guiding the automation, adding another burden to the sales compensation team’s load.
No other team in a company deals with that much complexity and has that big of an impact on revenue.
Elevating the Sale Compensation Analyst
Our founder, Nabeil Alazzam, was a sales compensation analyst for ZS, one of the leading management consulting firms, which ultimately inspired him to found Forma.ai. Frustrated with the existing sales comp automation software’s inflexibility and the broken promises of vendors, he proposed an entirely new approach to sales performance management.
Forma.ai’s Compensation Approach
Step one is unifying all sales compensation processes into one highly-flexible system to avoid all the frustration, wasted resources, and missed sales targets. All commission rules become pre-built templates leveraged collectively by all Forma.ai customers.
Traditional ICM doesn’t allow for easy scenario modeling, meaning sales comp teams resort to calculating a handful of outcomes in Excel. To prevent this, Forma.ai is a simulation engine where companies can run unlimited models to evaluate the impact and seamlessly merge them into the plan.
That combination eliminates the manual, repetitive work required to manage most sales compensation software, elevating the sales compensation team to a strategic, high-value role.
In the words of one of our customers, Dr. Robert Bieshaar at Autodesk, “The value of the conversations the sales compensation team is having across the business is now several times higher.”
“The value of the conversations the sales compensation team is having across the business is now several times higher.”Dr. Robert Bieshaar, Snr. Director Worldwide Incentive Compensation, Mergers & Acqusitions, Autodesk.
When you implement a solution like Forma.ai, we own the repetitive work, and your team owns the most important part of sales compensation — providing business context, strategy, and approvals.
How Does Sales Compensation Software Improve Sales Operations?
While leaders design variable compensation plans to motivate team members, most employees feel their bonuses are random and something they can’t control. The math seems to be a mystery that managers secretly decide on, and employees (understandably) never seem to know whether the team is on track to hit their targets.
Because variable compensation is rarely transparent for employees, they feel that any mistake or setback can ruin their chance of receiving the bonuses that sold them on the job in the first place. Enter sales compensation software—where managers, payees, and employees can finally benefit from data-driven compensation transparency.
Sales compensation automation software helps organizations create better, more adaptable incentive plans that keep reps motivated throughout the sales cycles and drive profitability. And we’re not talking about automating payouts.
Compensation automation software builds new workflows that help large enterprises automate their sales compensation process, from pre-sales incentives to calculating commission splits to complete plan re-architecting.
Here are a few ways incentive compensation automation can help you boost profits in the face of increasing complexity.
1. More efficient payroll processes
If you haven’t adopted sales compensation automation yet, your sales ops team is probably spending 90% of their time just trying to make payroll. Unfortunately, that leaves just 10% of their time spent on value-adding activities, like performance analysis, territory alignment, and incentive optimization.
The sales compensation analyst role is a precious resource; they shouldn’t be wasting their time (or yours) on the payroll treadmill. Beware of tools that claim to offer automation but require your team to babysit the system. True sales compensation automation handles most of the admin work, so your sales compensation team can focus on driving performance and profits.
2. Lower commission error rates and faster dispute resolution
We like to say, ‘You can’t put a price on your best reps,’ but wind up settling for erroneous systems that create a terrible payout experience. Your top reps need to be selling, not resolving disputes about their commission.
Commission errors are much more than minor annoyances. Consistent errors can lead your top reps to lose trust in the company and leave them feeling less valued. So avoid using spreadsheets or clunky legacy SPM solutions that only marginally decrease error rates. Instead, choosing the right sales compensation software eliminates nearly all commission errors.
And while errors can still occur with sales compensation automation if it’s fed inaccurate data, your compensation software vendor should be accountable for accuracy rather than putting the responsibility on your management team. When your vendor takes on the task of payroll accuracy, your reps can bring the dispute directly to the vendor, rectify the error, and get paid fast.
3. Increased sales productivity
When your reps aren’t worried about the accuracy of their payouts or spending hours chasing down finance, they focus on driving more growth for your organization. As a result, reps will feel less inclined to do any shadow accounting and have one less worry.
Don’t discount the power of a seamless sales compensation experience. Automation removes the headaches of incentive compensation, ultimately increasing employee morale and satisfaction.
4. Improved data integrity
Performance dashboards are populated by CRMs, BIs, ERPs, and HR systems, determining payouts. With sales compensation automation, you can connect all disparate data sources, making your entire sales data stack more valuable.
Your sales team can confidently track quota attainment and performance when your data is clean, connected, and presented in context. When sales reps know exactly what they need to sell and which deal to close to maximize their commission, they are naturally more motivated.
At the end of the year, you’ll feel the relief of having aligned your systems and maintained data integrity. Also, putting data integrity on autopilot makes audit trails and compliance a breeze so you can focus on next year’s goals.
5. Better ability to analyze and forecast
Advanced sales compensation automation does far more than accelerate your payroll process. Tools like Forma.ai give customers access to predictive algorithms that reveal otherwise invisible insights. Using AI, you can accurately forecast demand, calculate sales projections, and set smarter sales quotas.
Predictive algorithms continue to analyze performance by analyzing performance outcomes, making them more intelligent over time. As the system learns, companies make better decisions and drive more profitability.
How to Remove the Guesswork From Your Sales Compensation Plan
If you’re getting lost in the sales compensation maze, you’re far from alone. The tech stacks we pull data from are expanding, deal volume is increasing, and compensation is becoming more sophisticated. Unfortunately, sales compensation (especially for enterprise companies) can be a mess without the right tools and expertise.
Tools like Forma.ai increase profits and productivity by streamlining commission payments with real-time compensation plan management. In addition, automated sales compensation solutions decrease payout errors and reduce time spent on payroll administration.
Using sales compensation automation means no longer wasting time with error-prone data entry and no longer worrying about the accuracy of calculations.
Ready to create a payout experience that retains and attracts the best reps and lets them focus on selling?
To learn how Forma.ai can automate and optimize your sales compensation program, book a call with a sales compensation expert here.