How to Not Screw Up Your Compensation Plan

By Dan Stewart

In March 2018, United Airlines announced a polarizing new employee bonus program that would replace more predictable, traditional quarterly bonuses with a lottery-based system from which “winners” would be selected by random drawing. Not surprisingly, United faced immediate backlash from its employees and was ultimately forced to rescind its new approach.

United likely set out with good intentions – to increase excitement around the bonus program by offering the chance to win more significant rewards, all while saving money on the overall cost of the program. However, the new system had the opposite effect; and employees pushed back…to put it mildly. The new approach simply did not meet their desire for predictable cash bonuses that could be earned by accomplishing clearly-defined benchmarks.

Truly effective compensation programs harmonize the needs and goals of the organization and the employees. In light of what United has taught us, the best programs come down to transparency, meaningful rewards, and simple processes that strategically transform sales operations from start to finish. Here are four hallmarks of a compensation and bonus plan that will actually motivate and engage salespeople.

Tip #1: Be open and transparent.
Companies must communicate the objectives of the bonus or compensation program and illustrate how those objectives can be achieved. That way, salespeople can see a clear picture of both the goals the company is trying to achieve and the rewards they can expect as a reflection of their individual contribution.

Instead of basing the qualification for compensation on global metrics, companies should bring visibility closer to the individual by tying performance metrics closer to the employees’ actions. For example, sales leaders can set target goals around leveraging sales enablement tools to target the right customers.

Tip #2: Deliver meaningful target pay.
To effectively change employee behavior, the amount of pay at risk, according to industry standard, needs to be 15 percent or higher. Otherwise, employees will find themselves asking, “What’s in it for me?” When the weight of a bonus program is low, employees will determine that the risk/reward is not worth changing their behavior.

In the United example, the company did adjust the level of upside, with a possible max quarterly bonus of $100,000. However, since the new program was lottery based, the extremely low probability of winning this award affected how people received the message. Even though the maximum potential bonus was higher than previous bonuses, only winners of the drawing would receive any prize, leaving the remaining eligible employees with nothing to show for their contributions. It is easy to see how some employees would feel as though they no longer had a meaningful reason to change their behaviors and continue to achieve their performance goals.

Tip #3: Simplify the rollout.
Organizations need to effectively – and proactively – communicate the compensation plan, review individual employees’ goals directly with them, and explain the “why” behind each goal. They must also track, measure, and adjust the plan.

For sales leaders, finding the time to invest in this can be difficult, but can be achieved by automating or offloading routine operational tasks. This provides time for more effective communication as well as to focus on future-oriented strategy and guiding the sales force in the right direction to achieve your goals.

Tip #4: Remain adaptable.
What is the organization’s most pressing current need? Acquiring new customers? Retaining them? Profitability? New product distribution?

No matter your organization’s immediate focus, ensure your sales bonus and compensation plan is easily adaptable. As corporate or market changes hit, strategy should change. To capitalize on these opportunities, it’s important to plan for change. If sales leaders can make quick modifications to the plan and, by extension, drive specific selling behaviors toward achieving new goals, the entire organization gains agility and flexibility to compete in the market – no matter the challenge.

Yes, Great Motivational Programs Increase Revenue
Compensation and bonus structures are all about motivating positive changes in behavior that increase the bottom line. Instead of relying solely on the intrinsic motivation of sales teams to deliver desired customer experience and operational excellence, organizations need to take a step back and ensure their plans keep both business goals and employees in mind. By taking a look at the bigger picture and creating a sales compensation plan that aligns with the overall goals of the company, organizations can create meaningful and transformative change in their sales operations.

Dan Stewart is director of strategic engagement at Optymyze.