- Warning signs. Key warning signs that may emerge before your sales compensation program breaks down, such as an introduction of plans and quotas well after the fiscal year has started and frequent crediting and payment disputes.
- Effective governance. To build a truly effective governance framework, several components should be put into place, including an end-to-end process, roles and responsibilities, global calendar and service level agreements (SLAs), and sales compensation committees and escalation pathways.
- Analyze and assess. Analyzing plan effectiveness will help identify future change requirements.
Without a strong governance structure, it's easy for any company’s sales compensation program to risk breaking down. Fortunately, there are key warning signs that may emerge before your sales compensation program comes to a grinding halt. Those include:
- Introduction of plans and quotas well after the fiscal year has started
- Excessive questions from the field about how the plan works
- Frequent crediting and payment disputes with no defined resolution pathway
- Regular finger-pointing among those responsible for program management
Learn: Sales Compensation: Strategy and Design Application
Sales compensation program leaders who find themselves in these scenarios are not alone. Many commercial organizations allocate substantial resources to plan design yet fail to allocate the time and investment necessary to ensure the right systems, policies and processes are in place to make the sales compensation program operate smoothly.
Building a Complete Governance Framework
We often see a breakdown across governance models because they fail to link together all five phases of the sales compensation program. These phases can be defined as:
- Plan. Capturing critical sales strategy-related compensation design inputs such as business objectives, coverage model and job roles and responsibilities.
- Design. Working with multiple functional groups to develop plans that align with sales objectives and drive the right behaviors.
- Implement. Setting up targets and territories, crediting rules and policies, and communicating plans to sales incumbents.
- Administer. Calculating and processing payments, providing reports managing exceptions and resolving disputes.
- Assess. Analyzing plan effectiveness to identify future change requirements.
When issues arise within a company’s governance framework, many managers opt to simplify the process and introduce automation. Instead, leaders should seek to identify the root cause of sales compensation program breakdowns.
What Does an Effective Governance Framework Look Like?
To build a truly effective governance framework, we recommend these four key components be put into place:
An End-to-End Process. Sales compensation leaders should begin by building a comprehensive set of execution steps, inclusive of everything from the plan to assess phases. Even if this sounds easy on the surface, larger companies often have more than 100 unique steps, each requiring time and resources to execute. Mapping these processes can be challenging but well worth the effort. Once complete, leaders will have the foundation to execute all the steps of sales compensation program management with clarity and transparency.
Roles and Responsibilities. The assignment of owners, approvers and supporters should be appropriately documented for each step in the end-to-end process. This can be challenging because it can be difficult to align who should be doing what if something falls outside someone’s traditional job function. Still, sales teams will benefit from having a well-thought-out responsibility assignment (RACI) matrix over the short and long term. All participants with a specific plan cycle should be clearly aware of who is doing what so the process moves efficiently. Additionally, when key players transition to new departments or leave the company, replacements can more easily pick things up to ensure the engine keeps running.
Global Calendar and Service Level Agreements (SLAs). The alignment of the RACI matrix with the global calendar is often overlooked. This is a critical flaw as the timing of activities is of equal importance as the assignment of owners. Recently, a client regularly experienced tension between program contributors because functional groups didn’t have shared commitments on the timing of key deliverables. This caused distrust, indifference and a delayed domino effect that caused plans to be introduced halfway through the year. For the global calendar to be effective, end-to-end process steps should be sequentially ordered with start and completion dates. Since many steps within the sales process require input from previous steps, establishing clear ownership and deadlines within necessary time frames helps ensure key dependencies associated with each step are effectively handled.
Sales Compensation Committees and Escalation Pathways. To ensure a sales compensation program continues to run smoothly once it has been implemented, a sales compensation governance committee should be created and meet regularly to address issues such as rep performance, plan effectiveness, plan cost actuals vs. accruals, management exceptions and crediting disputes. With this committee in place, confidence in the sales compensation program increases as participants know their concerns will be addressed and ideas will be considered for next year’s plan design. Best-in-class sales compensation committees can take on any shape or structure depending on the organization size, but all share fundamental characteristics:
- Defined charter with representation from multiple functional groups
- Clear escalation pathways that define the what, when, who and how of issue escalation
- Repository for plan improvement suggestions
To scale a company’s sales compensation programs, sales leaders must first seek to establish an effective governance model. With the right infrastructure, companies can save time and ensure the sales compensation programs continue to run smoothly.
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