People as Resources

People are a resource and not just a cost.

The Japanese heeded first and best my point of view that people must be viewed as your colleagues and as one of your prime resources.  It is only through such respect of the workers that true productivity is achieved.  

People are a resource and not just a cost.  The most enlightened managers have started to understand what could be realized managing people toward a desired end or goal.  Management is so much more than exercising rank and privilege; it’s so much more than “making deals.”  Management affects people and their lives, both in business and in many other aspects as well.

ACTION POINT: Look at people as resources to be developed.  Take steps to expose your people and yourself to the best ideas and see to it that they are trained in how to apply them.

Getting Aligned II

Nothing will pressure test the work done previously and  nothing will cement the reality of a strategy better than aligning pay with it. 

The second reason jumping into formulas doesn't make sense is because changing compensation programs is not a task to be taken lightly, which you already know if you have ever been through it.  

As a general rule, the broader the level of inclusion in the process, the better the output will be.  Different functional areas have different perspectives on what will be required for the company's strategy to be successful.   Having a variety of functional voices has many benefits.   Nothing will pressure test the work done previously and  nothing will cement the reality of a strategy better than aligning pay with it. 

Senior management has a very clear role in the process.  It is this group that was responsible for establishing the strategy and creating the supporting structure.  It is only this group that can make the difficult decisions on what dollars of gross margin are more valuable than others. 

While laying this groundwork, do not forget the importance of communication.   It is best to have a simple, consistent, proactive message to explain the effort right up front.   This explanation should not set any expectation as to the ultimate plan design.  As a general rule do not ever communicate any details of a new compensation plan until you are prepared to present all the details.

ACTION POINT:  Focus your strategy by determining what dollars of gross margin are more important than others. 

Getting Aligned

There are many programs and options and understanding these options will reduce the chances of creating an ineffective program by having too narrow a perspective.

If after assessing the alignment of your company's existing sales compensation programs and your company's strategic objectives you conclude that enough misalignment exists to warrant changes, the next step is establishing a necessary level of clarity on redesign objectives.

Many companies make the mistake of jumping straight to the Excel spreadsheets and playing with formulas.  This is incorrect for two reasons: first, most companies do not have a manager of sales compensation design.  As a result, most companies that jump straight to "tweaking the commission formal" do not have enough exposure to the breadth of sales compensation structures or mechanisms that exist.   There are many programs and options and understanding these options will reduce the chances of creating an ineffective program by having too narrow a perspective.

ACTION POINT: Consider alternate approaches to compensation.

Misalignment Identification III

If you were a sales rep and were informed of the company's current and long-term business objectives, what would your reaction be, considering the current sales compensation plan? 

The best way to answer the question "do the prevailing sales compensation programs encourage sales representatives to achieve the desired objectives?" is to place yourself in the sales rep's shoes.   If you were a sales rep and were informed of the company's current and long-term business objectives, what would your reaction be, considering the current sales compensation plan?  Don't answer this question solely based on how you would maximize your income, but also factor in quality of life and cash flow. Start with the assumptions that most sales representatives, especially those with more than a few years' tenure, have developed a lifestyle consistent with the income they are currently making.

Ask yourself questions such as: What's the downside for a rep if he or she doesn't support the strategy? How much change would be required in terms of learning new products and their applications or understanding a different group of customers?  How long is the sales cycle?  Will it take months or years to see the desired results? Reflecting on questions such as these will help identify the degree of potential misalignment that exists with the prevailing sales compensation program and the company's strategy.  Ultimately, it is a senior management decision as to whether enough misalignment exists to merit changes to the sales compensation program.

ACTION POINT: Make clear the results you want your sales comp plan to achieve.

Misalignment Identification II

...there are some indicators that can prove helpful in identifying misalignment.

There are no formal diagnostics that can be used to determine whether a company's sales compensation program is aligned or misaligned.  However, there are some indicators that can prove helpful in identifying misalignment.  They include the following scenarios:

• Making a good business decision is financially punishing (or at least not financially rewarding) for a sales representative.
• The difference in the rate of change for sales reps' incomes and company profitability are significantly different --for example, rep incomes have appreciated much more than company profits.
• It is difficult to change account assignments between representatives even when they seem obvious.
• There are frequent discussions between sales representatives and management about what is "commissionable" and what isn't. 
• The annual budgets or goals assigned to sales representatives are either accepted suspiciously easy or with an undue amount of difficulty.
• An identifiable trend exists in which sales reps manage their results be as close to 100% of budget as possible, or an every other year pattern in which one year a rep hits the goal but always misses the following year.
• There is ongoing negotiation around employment terms and conditions--car allowances, travel and entertainment expenses, and house accounts with an increasing frequency of "special deals" being cut.
• Sales reps either never leave the company or turnover is higher than in peer companies.
• It is difficult to get the sales force to effectively respond to short-term opportunities such as new product introductions.
• Sales reps and managers are satisfied with current levels of business and equate stable territory revenue with acceptable performance.

ACTION POINT: Look for any of the above scenarios in your business.