Sales Compensation Testing

Carrot on StringHow often do you hear (or say): “We need to change the comp plan.” For example: If you want to increase sales, if you want more team selling, etc., then you need to change the sales comp plan. Supporting rationales often go like this: “Salespeople are money-motivated. They are not paid to do that. We need to send a clear signal. We have to make it worth their while. Money talks.” And so on.

Have you ever wondered: Is something wrong with this picture? How do we know whether a compensation plan change will produce the desired result? Further, are the rationales for change compelling, or do they strike you as platitudes?

The recurring quandary over sales compensation stems from a measurement problem: How do you quantify or rate a sales compensation plan? Its features can be described, such as commission versus bonus, mix of salary versus incentive pay, etc. But there is no gold standard for sales comp design, so we cannot rate compensation plans themselves. We must rely on measuring their impact, rather than their design features.

The measurement problem is further complicated by “competing explanations.” If we change plan design and performance improves, can we say the gain was caused by the sales comp plan? Sales compensation is a single component within a highly complex system. Numerous factors drive sales performance, such as marketing programs, sales management efforts, competitive dynamics, and so on. This makes it very hard to determine whether a sales compensation plan change, or something else, caused a change in performance.

The classic, proven solution to assessing change in a complex system is testing. Companies do it all the time, such as in R&D and Marketing. But sales comp tests are rare. Maybe this needs to change. It is easy to envision a sales comp test: only change the comp plan in one or two test regions. After a trial period, compare sales performance in the test versus other regions. To further assess the test, interview salespeople and managers. Learn, revise, repeat, then launch for the whole sales team.

For further information on how to design, conduct and assess sales compensation tests, contact us.