Getting Aligned

A sales compensation program's virtue is not the inherent value of the commission rate used or the balance between fixed and variable pay.  How aligned the program is with the company's objectives and how supportive it is of the company's sales management processes is what really matters -- and dictates its value.

Upon realizing that the data from exhibit 4.1  did not reveal a relationship between company performance and compensation delivery it became necessary to pursue a different approach.  Interviews were conducted with dozens of senior executives and they shed light on what appeared to be the real differentiators between companies that were gaining market share and those that were not.  Specifically"

• "There is a strong relationship between share gainers and the alignment of their structures with corporate and sales objectives."
• "Share gainers have effective sales management processes in place."
• "There were clear differences between market share gainers and market share losers with respect to how incentive structures were developed."

Although the structure of a sales compensation program program is important, its effectiveness is subservient to the clearness of a company's strategy, an organizational structure that supports the strategy, and the existence of an effective sales management function.  A sales compensation program's virtue is not the inherent value of the commission rate used or the balance between fixed and variable pay.  How aligned the program is with the company's objectives and how supportive it is of the company's sales management processes is what really matters -- and dictates its value.

The conclusion from the data alone in exhibit 4.1 is often that sales compensation structure does not matter.  Nothing could be further from the truth.  The correct interpretation of the chart is that the structure of the sales compensation program, by itself, will not produce top performance.  

ACTION POINT:  Companies that abdicate strategy to the sales force and rely on their sales compensation program to manage their sales people will not be top-performing companies.