Managing Sales Compensation Requires Commitment

Sales organizations are under constant pressure to maximize their potential. To accomplish this they need to integrate their people and processes with those of the finance and operations groups and have access to all available information and useful technology. This is particularly true in the area of sales compensation, which when managed properly recognizes accomplishments, rewards success and motivates people. However, we find that few sales organizations take a comprehensive approach to sales compensation management.

Sales needs a well-developed compensation strategy that utilizes incentives and rewards to motivate sales talent. To optimize sales compensation strategies and processes requires access to all relevant information about quotas, territories, forecasts and bookings. Organizations have invested in technology for sales force automation (SFA), enterprise resource planning (ERP) and customer relationship management (CRM), but these systems are not designed to manage sales compensation.

Our recent benchmark research on sales compensation management reveals key indicators on the state of this critical sales activity and best practices and key insights that can help organizations improve. It is no surprise that nearly all research participants said sales compensation is very important (for 73%) or important (22%) to the success of a sales organization. An effective sales compensation requires efficiently running processes automated through software to manage data, models used to calculate commissions and workflow and communication with sales professionals.

Our analysis of the performance of organizations in sales compensation places fewer than one in five (17%) at the highest Innovative level. Each succeeding lower level tallied a larger percentage; the largest percentage (37%) rank at the lowest Tactical level of performance. Further analysis by industry and size of organization and sales team shows that the largest organizations manage sales compensation best. When measured by overall revenue, the very large have the greatest percentage (47%) at the Innovative level, significantly more than other sizes of organization. Our analysis also finds that larger organizations have both more sales people to manage and more resources to apply to sales compensation.

In addition, we find that more than one-third (34%) have impediments that are motivating management to consider further investments in sales compensation. The most common impediments are inconsistent execution in sales (61%), lack of sales effectiveness (48%), limited alignment of sales and strategy (45%) and scattered sales information (41%). Almost two-thirds of organizations with few or no impediments are satisfied with their current process, substantially more often than others. for the research finds that organizations that have impediments often have obstructions to making technology investments, primarily no budget (for 42%), low priority (38%), a business case that is not strong enough (37%), lack of resources (37%) and lack of awareness (28%).

On the positive side, we see positive results from such investments. Two-thirds of those that use dedicated sales compensation software have improved the outcomes of their sales activities and processes significantly (38%) or slightly (30%). One of the benefits of a dedicated approach is that commissions can be processed faster and more accurately: More than half (57%) of such organizations process them in less than a week. Another, more sophisticated benefit is that the sales force is aligned to business strategy and goals, which 43 percent ranked first, more than any other. Other benefits cited are better management and tracking of the progress of product and sales initiatives (by 30%), improved communications to Sales on the status of compensation (26%) and improved auditing and compliance of sales forecasts to goals and targets (25%). Among those planning to adopt dedicated sales compensation the highest-ranked expected benefits are to increase revenue and grow the business in terms of net new customers.

Improving outcomes also requires metrics that are aligned to sales objectives. In our research the most common metrics to measure overall sales performance are quota attainment (65%), revenue attainment (63%) and customer revenue (51%). Each of these metrics can be tied to compensa­tion, rewards and incentives. Organizations should make sure that the sales compensation software they use facilitates creating, tracking and reporting on metrics, which is essential to examining overall sales performance of which commissions earned are only a component.

Managing and improving sales performance must include a focus on the efficiency of processes for compensation and commissions, and it often involves more functions than sales force management. Sales Operations should assess its own efforts, as should Finance, which increasingly (in 31% of organizations) sponsors and funds investment and influences and wants to improve process or wants to access information for improving performance. Finance increasingly has a key role in calculating and processing commissions: In about 40 percent of very large organizations Finance performs these tasks, and Sales Operations performs it in about half of organizations. We conclude that sales compensation requires teamwork to ensure that the process, information and supporting software are managed optimally. As well as an organizational commitment to ensuring proper management, a dedicated approach to sales compensation can save time and resources while providing more accurate and timely payment of commissions. If your organization has questions in managing sales compensation, our research and expertise can provide guidance in making a detailed assessment.

Regards,

Mark Smith

CEO and Chief Research Officer