The Money-Go-Round

Based on a recent survey of 130 companies, Deloitte & Touche argues that most companies have still not found the right way to pay for sales performance, and productivity is suffering. Nearly 80 percent of responding companies changed sales-compensation plans at least six times in the past two years – without any gain in sales productivity.

Some firms expanded their sales forces, and some altered reporting structures, while others adjusted cash compensation, performance metrics and incentive mechanisms. But most firms still reward reps for selling any product, rather than the products most important to the company’s future.

“Too often, companies think that performance is just a compensation issue,” says Deloitte partner Larry Montan. “Many fail to first identify the customers who promise the greatest value.” And even when valuable market segments have been identified, companies have not organized and rewarded their reps to go after them.

Constant change without performance results brings a backlash, of course. Montan recommends the following improvements:

1. Tighten the linkage between sales performance and compensation.

2. Make sure your compensation plan serves your strategic goals, aligns with customer segments, and distinguishes between top and middle performers.

3. Simplify not only compensation but also its administration, by exploiting new software applications.

4. Watch out for red flags, such as high performers leaving the company, failure to make sales goals, or failure to meet strategic goals even when quotas are met.

5. Review your compensation plan for its alignment with your strategic goals at least once every three years.