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A Carrot That Works
November 27, 2007
Savvy sales compensation techniques can drive transparency and strategy
By Christopher Hosford
Sales compensation is seemingly a straightforward proposition: Dangle a few carrots, give the best sales folks a trip to Hawaii, stand back and reap the rewards. But according to Bob Conlin, it's much more complicated than that.
An appropriately constructed sales compensation program, says Conlin, chief marketing officer with Burlington, Mass.-based Centive, can help eliminate that most vexing—and divisive—issue for salespeople: Why am I receiving what I'm receiving?
Moreover, he says, better strategic compensation planning can help achieve strategic marketing goals as well. But it's seldom used that way, Conlin says.
"While most companies think they're paying their sales staff adequately, 67% of all sales vice presidents think their current commission system does nothing to drive behavior," he says. "Why hold a carrot out to sales if it's not steering them in the right direction?"
Say a medical devices company introduces a new product. The sales reps don't know much about it and are more comfortable selling the old device. One strategic solution is to devise variable commission levels for the two products—lower for the old one to disincentivize sales, and higher for the new product.
"You also might want to pay higher commission levels in some territories versus others to gain market share," Conlin says. An automated analysis of sales volumes, commissions and margins can forecast just how profitable (or unprofitable) various scenarios might be.
Centive offers an on-demand subscription application called Compel that calculates commissions and bonuses, as well as provides real-time visibility into sales performance metrics. Salary.com, based in Waltham, Mass., has deployed Compel within its Salesforce.com system.
At the very least, says Salary.com's Cathy Otocka, managing director of sales operations, her company is hoping that compensation automation will add greater visibility to the process.
"Historically, commission statements here were done by finance, and often a salesperson's paycheck would hit his bank account the same day as his commission statement would arrive by e-mail," says Otocka. "But sales doesn't have access to finance's applications. They'd have to take compensation on face value."
As a publicly traded company, the greater visibility afforded by automation also should help Salary.com's Sarbanes-Oxley compliance initiatives. And Compel's integration with Salesforce.com should leverage its CRM investment better.
Sales & Marketing Management Magazine
This article is brought to you by Sales & Marketing Management, the leading authority for executives in the sales and marketing field.
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