Is Your Commission Plan Built on Flawed Assumptions?

As a company in the business of helping companies grow their sales organizations, we are consistently brought in to assist with defining or refining compensation plan structures.

It seems sales organizations are always searching for the ‘perfect plan.’

During a recent conversation, one client was describing their draft plan in great detail. I interrupted the client to ask pointedly: ‘What is the primary objective of your comp plan?’ The natural and rapid response was ‘to motivate my sales people of course!’

‘Of course’, I agreed… ‘but motivate them to do what?’

I continued. ‘Let me be more clear’ I offered. ‘Is your primary intent to motivate them to over-perform?’ i.e provide an incentive for them to achieve greater than 100% of their target objective.

‘or is your primary intent to protect against the downside risk of resource non-performance?’ i.e expend less money on those that don’t hit their quota.

The client barely paused before answering ‘motivate them to overachieve.’ As it turns out, this is the overwhelming favorite when I ask this question.

I continued my inquiry: ‘Sounds reasonable…but let me ask you….over the past 10 years you have been running sales teams, what percent of sales people have even achieved their goal?’ The client pondered this question for some time and then responded ‘I would say around 30%.’

Again, this was fairly unsurprising. In most cases, clients agree that only 25-35% of their sales resources ever hit quota. This is consistent with the research of Jim Dickie and Barry Trailer of CSO Insights.

This is what you call a ’root cause’ issue for sales leaders. One of your most important tools is built on a flawed assumption.

One might even say that sales organizations are striving to succeed based on the myth that you can build a plan that motivates sales people to do better than expected when the vast majority fail to even meet baseline expectations.

For more on this, you can check out a paper I published some time back for the Kauffman Foundation titled Turning Sales Compensation on its Head.