The mission of a sales compensation plan is to drive sales using a strategic plan alignment. This means the company pays its salespeople for growing revenue through one or more focus areas.
This year’s incentive compensation management (ICM) benchmarking study asked multiple departments within 300 companies, of all sizes and industries, for their take on the effectiveness of their incentive compensation. Ultimately, the study uncovered that many organizations find strategic plan alignment elusive – regardless of industry or company size.
Of course, sales leaders want to retain sales talent. It’s expensive to replace reps, and a vacant territory leaves a hole in sales targets – both of which make it difficult to grow revenue. While sales employee turnover rates are still in line with historical benchmarks – according to the Alexander Group 2022 Sales Compensation Trends and Radford Q4 2021 Trends Survey – two-thirds of the ICM study indicated talent retention is a primary initiative that ICM should support.
Notwithstanding what was reported to be the priority, only 44% of these companies rated their incentive compensation plans as effective at retaining talent. A similar gap was shown for talent acquisition initiatives designed to hire the needed number of people responsible for revenue growth.
Typically, sales management looks at pay competitiveness as a key ingredient for retaining salespeople. Indeed, exit surveys often reveal pay as a top reason for a person’s departure. However, skeptics of such surveys reasonably claim that pay is a faceless scapegoat to avoid blaming a bad manager or a difficult-to-justify perception of limited career growth.
Whatever the case, when a company identifies systematic and widespread competitive pay gaps, pay increases can reduce sales rep churn. However, there’s little to stop a growth-obsessed competitor – particularly one with private equity backing – from buying your already-well-paid talent. Counter-moves using retention bonuses only buy time, and don’t address the root cause when there’s evidence to suggest your company is paying competitively.
The ICM benchmarking study indicated that smaller companies tend to struggle with issues of strategic alignment more than larger ones. Whether the issue is opaque performance goals or unreliable pay data, management in smaller, high-growth companies tends to focus on short-term results at the expense of longer-term initiatives that enable sustainable revenue growth.
The talent issue is both strategic and operational. Talent retention requires more than an assurance of competitive pay or a quick response to save a disengaged salesperson. People need a plan for growth – whether career growth, income growth, or the time spent on the more engaging parts of their job. Sales management plays an important role in helping each of their team members with a plan for growth.
If you have concerns about how your company’s incentive plan impacts sales talent retention:
Knowing why it stays is more helpful in the long term, and more actionable in the short term. However, what works for one person might not for another. Expect that many of your plans for increased salesperson engagement and retention will be personal and dynamic.
Have your sales managers engage with their people to identify each person’s plan for personal growth. Are their income growth goals short-term or longer-term? How does a person’s risk tolerance and short-term financial predicament align with their job’s incentive plan structure and variable pay opportunity? What are any non-cash opportunities for recognizing their performance? What are the non-monetary needs for job growth and change?
Most companies have a treasure trove of customer and employee data that, when analyzed, can help predict why good salespeople throw in the towel. Making sense of this data can require relatively sophisticated analytical tools, so plan accordingly.
Continued demand for scarce talent, evolving attitudes toward job mobility, and increased expectations of fulfillment mean companies need new and creative ways to mitigate salesperson churn and ensure revenue growth. Sales compensation is just one of several tools available to management for motivating employee engagement and revenue growth. Revenue leaders need to thoughtfully plan for required changes to better align their incentive plans with the company’s revenue growth initiatives and employee expectations.
To learn how to increase sales, improve sales retention, and enable your team to outdo past performance, watch Varicent’s “How to Dramatically Boost Sales with a Data-Driven Sales Comp Plan” on-demand webinar.
Hear more about Varicent’s benchmarking study as well as how to diagnose the health of your ICM by watching the Spring Summit virtual event on-demand.
Scott Barton is a vice president with Varicent, a leading provider of incentive compensation and revenue growth software applications. For over 25 years, Scott has helped design and manage incentive compensation programs and related initiatives to support revenue growth.
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