Sales Comp Considerations: Choosing Between Individual, Team Measures

Savvy organizational leaders and total rewards professionals know that a sales compensation program is much more than a method to distribute payouts to the salespeople. Sales compensation plan design communicates information to the salesforce regarding the intended organizational culture, expected seller behaviors, and success metrics at both individual and corporate levels.

Although easy to overlook, selecting the right sales compensation measurement level is the place where leaders can crystallize their operating philosophies and change how sellers behave and perform.

What Is ‘Measurement Level’?

In terms of sales compensation, “measurement level” refers to the organizational layer at which performance is gauged. It generally aligns with a company’s management hierarchy (e.g., territory, district, area, region, theater and global). For simplicity purposes, this article will break it down into three general categories for individual-contributor jobs (see table).

Why Do Companies Use Individual Measures?

Individual measures generally allow companies to drive personal accountability and a pay-for-performance culture. To maximize a return on incentive spend, 27% of companies recently moved to more individual (vs. team) measures in their sales compensation plan, according to the results of the Alexander Group’s Sales Compensation Trends Survey.

Some organizations will need to change their coverage model, job design, resource planning and/or territory definitions to drive more individual focus. For example, a company may move from a paired account executive (AE) and account manager (AM) pod structure to an AE focused on landing new logos and an AM focused on retaining and expanding business with existing customers.

Why Do Companies Use Team Measures?

Companies use team measures for individual-contributor jobs for a variety of reasons. These may include companies having:

• A collective “win-together” philosophy. Companies with such philosophies will use team and/or group measures to reinforce their shared-destiny culture. Measurement: Individual and team, or team only, depending on the degree of collective reward philosophy.
• A collaborative work team. A team of resources can have a shared mission and collaborate to build innovative solutions (e.g., a strategic account team, a paired seller and sales engineer, a paired AE and AM pod). Measurement: Team.
• A set of sellers who collaborate on leading practices. A set of sellers with individually assigned accounts can benefit from cross-sharing leading practices among the team. This is commonly used with a new and/or small sales team in a new geography or a sales team within an industry sector. Measurement: Individual and team.
• Separate specialist sellers needing to collaborate. A set of specialist sellers may need to collaborate within an account or set of accounts that have the same/connected buyers. Measurement: Individual specialty (may include a second team/total-account measure to drive collaboration).
• A global and local team. Global sellers are focused on a headquarters relationship, as well as a global account plan, with related pricing and sales. Local sellers manage local relationships and co-sell with the global sellers. Measurement: Global sellers have a global measure; local sellers have a local measure (may have a second global measure if there is high cross-region interaction and/or an inability to allocate sales across regions).
• Tightly deployed overlay resources. An overlay role co-sells with a narrowly defined set of sellers (e.g., six to 12). The role may focus on a subset of the business based on the overlay’s remit (e.g., product, service, renewals and small deals). Measurement: Assigned seller’s measure, generally a subset of business (e.g., product, service, renewals or small deals).
• Widely deployed overlay resources. An overlay role co-sells with sellers on specific opportunities across a widely defined territory (e.g., country, region, globe). This may be a highly specialized role where there is limited supply (technical evangelist) or a pooled resource (e.g., virtual customer success or large-deal pursuit specialists). Measurement: Assigned geography, generally a subset of business (e.g., product, service, renewals or small deals). To drive more accountability, some companies use key sales objective (KSO) plans (a.k.a. management by objective plans, or MBOs), deal-based plans or remove jobs from eligibility.
• Inventory constraints. Management may dictate what customers receive constrained inventory based on strategic focus, margin and other criteria, leading to the use of team measures. Measurement: Individual and team, or team only, depending on degree of seller’s influence.
• A hard-to-track measure. The organization does not have the system or process to track the measure at the individual level. Measurement: Use team measure or KSOs/MSOs until systems/processes are updated.
• An inability to set individual quotas. The organization does not have the ability to set individual quotas. Measurement: Use team measure, KSOs/MBOs or commission rate plan until can set individual quotas.

Technology Hardware Case Study

For decades, a leading technology company that designs, builds and supports a variety of computer hardware had a collaborative team-based culture. Their sales compensation plans reflected this mindset, with many team- and group-level measures. In addition, they had complicated plans with too many measures, many metrics that do not directly link to revenue results and unclear definitions. This situation contributed to a culture where sellers lacked individual accountability and were frequently compensated for sales in which they had no direct involvement.

A new leadership team aimed to shift the sales team mindset. Their new reward philosophy focused on pay for performance and the need to distinguish between high and low performers. Using this directive, the design team redesigned the sales compensation measures to emphasize individual accountability in three main ways:

1. Simplified measures. They reduced the number of measures to one to three primary measures that aligned best to revenue results.
2. Lowered measurement levels. They used individual measures across each plan for primary selling jobs. If that was not possible, they used team or group measures aligned to the job’s specific team or group focus.
3. Introduced a KSO program with individualized goals. They implemented a KSO program (similar to an MBO program but focused on sales persuasion activities) that allowed managers to set individual goals for sellers who were on a plan with a team or group measure.

These measure changes — along with adjustments to eligibility, pay mixes and pay curves — resulted in a wholesale program that drove a culture shift. Sellers felt more in control of their incentive earnings potential and saw a material amount of earnings in play. Additionally, the company was able to use this philosophy and plan design change to weed out “free riders” and attract new sales talent that thrived in a high-risk/high-reward environment.

So, What Measure Is Better?

When determining whether to use individual or team-based measures, there is no one-size-fits-all answer. However, there are a few leading practices:

• Confirm the sales culture and reward philosophy — individual pay-for-performance or collective “win-together” mentality.
• Confirm the job type — individual contributor or collaborative work team.
• Use individual measures to reinforce a culture of seller accountability and minimize the ability to “free ride.” (Note: Some organizations may need to change their coverage model, job design, resource planning and/or territory definitions to drive an individual focus.)
• Use team measures for a collective “win-together” mentality, collaborative work team, overlay jobs or when it is difficult to track and/or set quotas for individual metrics.
• When using both individual and team measures, ensure proper weighting and/or payouts to align to the desired philosophy and job behaviors.

These guidelines should help organizations align their plan designs with their unique culture, philosophy and job types to create meaningful rewards.

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Organizational Performance
• Sales Compensation
• Total Rewards