7 Costly Mistakes to Avoid in Your Sales Compensation Plan Design

Your sales compensation plan is one of the most powerful tools at your disposal for attracting, motivating and retaining top sales talent. A well-designed plan aligns your salespeople‘s financial incentives with your company‘s revenue goals and growth priorities. It drives the right selling behaviors to achieve your objectives.

However, we see companies make critical missteps in their sales comp plan design all too often. These mistakes can not only fail to properly motivate your sales team, but actively encourage the wrong behaviors, breed resentment, and even open you up to legal risk.

As you build out your sales compensation strategy, make sure you sidestep these seven major mistakes:

1. Recycling Another Company‘s Comp Plan

While it may be tempting to take a sales comp plan that worked at a previous company and implement it at your current organization, resist this urge. Your plan needs to be custom-tailored to your own company‘s unique goals, sales roles, market landscape, and growth stage.

What worked well for another business likely won‘t fit your specific needs and priorities. Copying and pasting a plan is a surefire way to end up with misaligned incentives. Start from scratch and design a plan that supports your distinct revenue targets, product focus areas, and sales team structure.

2. Creating Commissionable Events Not Tied to Results

In an effort to drive key sales activities, some companies make the mistake of compensating reps for things like demos completed or calls made. But this is misguided. Your sales comp plan should only reward clear, measurable results that directly contribute to revenue.

Attach incentives to outcomes, not just activity. Compensate the most for the sales results that matter most to the business, like bringing in net-new customers, hitting new product quotas, or expanding into strategic verticals. Don‘t waste money commissioningmenial tasks.

3. Using a Flat-Rate Commission Structure

Flat-rate commission structures, where reps earn the same commission percentage no matter their performance level, are simple to administer. But they fail to truly motivate your highest-achieving reps.

Instead, use accelerators to increase commission percentages on performance above quota. Consider spiffs or bonuses for strategic sales like new customer acquisition. Vary commission rates by deal type to reflect your priorities. A tiered structure ensures you amply reward those delivering outsized results.

4. Having Ambiguous Crediting Terms

Your sales comp plan documents need to spell out in painstaking detail how commissions are credited in every possible scenario. What happens if multiple reps work a deal? How are renewals handled? When are clawbacks enacted? What level of involement is required to earn commission?

If you leave any room for interpretation, you‘ll inevitably end up with commission disputes that waste time, erode trust, and could even result in legal action. Work with sales comp and legal experts to draft air-tight terms that address all contingencies.

5. Not Sharing the Plan Early With Candidates

Don‘t wait until a new sales hire‘s first day to give them the details of your comp plan. A vague promise of "competitive pay" won‘t cut it. Your compensation package should be a key selling point you leverage to attract top talent.

Share the specifics with final candidates so they can factor it into their decision. Be prepared to walk them through how they can maximize their earning potential. Demonstrating a commitment to rewarding high performance will help you stand out to the best sellers.

6. Commissioning Sales Forecast Accuracy

Some companies attempt to improve pipeline visibility by offering incentives for sales forecast accuracy. But tying compensation to reps‘ predicted timelines and close dates rarely improves accuracy, and only distracts from core selling activities.

Reps may lowball estimates or try to game the system to earn extra pay. Others spend inordinate amounts of time updating CRM probabilities. Instead, keep the focus on closing deals. Use manager oversight, not comp incentives, to enforce forecast hygiene.

7. Managing the Plan in Spreadsheets

While ubiquitous, spreadsheets are ill-equipped to handle the intricacies of sales compensation plans. Version control issues, broken formulas, and manual data entry introduce far too much room for error in something as sensitive as payouts. Spreadsheets also fail to give reps real-time visibility.

Implementing sales compensation software to automate calculations, improve accuracy, provide transparency to reps, and forecast costs should be a top priority. It‘s a necessary investment, not an administrative afterthought. Spreadsheets put the whole integrity of your plan at risk.

Designing a Winning Sales Comp Plan

Now that you know what not to do, follow these tips for designing a best-in-class sales comp plan that drives the results you want:

• Align incentives to company revenue goals and growth priorities
• Keep the plan as simple as reps need to clearly see how their efforts impact their pay
• Set realistic quotas based on market opportunity and historical attainment
• Over-index rewards for the sales outcomes you value most
• Implement accelerators and spiffs to motivate over-performance
• Leverage performance tiers to differentiate rewards as reps advance
• Provide a lucrative enough mix of base pay and incentive pay to attract top talent
• Plan for a wide range of contingencies in your crediting and eligibility terms
• Implement sales comp software to streamline administration and provide transparency
• Communicate the plan clearly and regularly to keep reps focused on comp-driven goals
• Collect feedback from managers and top performers on potential optimizations
• Review and iterate on the plan design at least annually as the business evolves

Most importantly, recognize that sales compensation planning is an ongoing, strategic process, not a one-and-done task. As your market landscape shifts, new products emerge, and the organization grows, your sales comp plan needs to evolve in lock-step.

By proactively avoiding these common pitfalls and regularly assessing the efficacy of your plan, you‘ll keep your sales engine humming. An thoughtful, well-designed sales compensation structure ensures you can consistently attract, motivate and retain the game-changing sales talent you need to achieve your business goals, both this year and for years to come.