- The importance of fairness. A perceived lack of fairness in sales incentives significantly contributes toward top sales talent leaving your business.
- The cost of turnover. A revolving door of frustrated and unhappy account managers doesn’t inspire confidence in your business, and potentially leads to even further loss of revenue.
- The role HR and total rewards professionals play. Total rewards and HR professionals can improve fairness by being transparent about the process of territory and quota setting, opening it up to scrutiny and looking for the good ideas and consistent themes.
Sales performance management (SPM) is comprised of compensation plan design, territory and quota management and, of course, the calculation and reporting of incentives for all your hard-working salespeople.
Sales incentives are part of a comprehensive total rewards package but may only be applicable to a small percentage of your workforce. However, they are no different from other elements of total rewards — they are what employees are entitled to receive in exchange for the results they deliver.
A study from OpenSymmetry and IBM found that HR was responsible for the administration of sales incentives in just 25% of companies. In 69% of organizations, it is owned by sales operations, finance or IT. At a recent HR conference I attended in Barcelona, this split by business function seemed unchanged.
So, there is a disconnect, but what’s the problem?
Research on the subject has found that seven of the top reasons that salespeople choose to leave organizations are all connected with sales incentives. Frequently changing compensation plans, territories that make no sense, unobtainable quotas, and the perception that the game is rigged were some of the key reasons cited and these can all be distilled into one word: Fairness.
You’d be hard pushed to find a company that goes out of its way to create a situation in which unfairness is deliberately engineered. More often, unfairness is an accidental byproduct of people trying to do the right thing with limited resources and available information.
It’s in nobody’s interest to penalize salespeople through territories that don’t align with a salesperson’s skills, relationships or geographic presence. This scenario occurs through a lack of information about individual sellers or a lack of the right resources in the right place. Regardless, a perceived lack of fairness significantly contributes toward top sales talent leaving your business.
Accounting for Fairness
Consider a scenario where an account manager leaves your organization over an issue of fairness relating to their sales incentives plan. This can immediately affect your customers.
When salespeople leave, the knowledge and relationships with a key account are lost and with it, the deals they were working on, resulting in lost revenue. Next, you need to recruit and onboard a new account manager. This can take at least three months, with hiring input from HR professionals, hiring managers and their teams, IT, senior management, etc.
In addition, your business is missing out on revenue from the moment that account manager decided to leave, up until their replacement is fully up to speed. With an SPM structure that is not fair and transparent, this can clearly lead to low morale within the sales team that remains.
Thus, your key accounts have a new point of contact in your business, new relationships to build and, if morale is low, the new hire might not be around for long anyway. A revolving door of frustrated and unhappy account managers undermines confidence in your business, and potentially leads to even further loss of revenue.
Fairness and transparency are key pillars of effective HR policy and it is in this capacity that7 total rewards professionals have the most to offer.
The Role Total Rewards Professionals Play
Total rewards professionals can play the biggest role in plan design, territories and quotas. Sure, the day-to-day management of your incentives processes may be carried out effectively in other parts of your organization, but don’t wash your hands of it altogether.
Here are ways to improve the perception of fairness:
- Be transparent about the process of territory and quota setting.
- Open it up to scrutiny and don’t get too defensive when the suggestions come piling in.
- Look for the good ideas and consistent themes.
Ongoing surveys of the salesforce are a great way to understand sentiment and participation will be high if there is a genuine belief that views will be taken into consideration and acted upon. After all, such an exercise could help identify a meaningful trend or concerning view, which if acted upon could head off a deterioration in the perception of unfairness or worse, an exodus of your top sales talent.
Ensuring fairness, equity and effective communication when it comes to sales incentives strategy can help avoid the expensive mistake of creating a culture in your sales team where everyone has half an eye on the exit door.
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