- Increased revenue. Revenue growth is expected to rise in 2024, increasing to 13% in 2024, according to The Alexander Group’s 2024 Sales Compensation Trends Survey.
- Investing in talent. Companies are also investing in their talent. Almost two-thirds plan to add headcount in 2024, the biggest increase since 2019.
- Leveraging pay-for-performance. Ninety-one percent of companies expect to update this year’s plan design to drive pay-for-performance and strategic goal alignment.
Revenue growth is expected to rise in 2024, increasing to 13% in 2024 (up from 10% in 2022 and 2023), according to a recent survey.
The Alexander Group’s 2024 Sales Compensation Trends Survey found hiring is also expected to grow this year (69% of companies are expecting to increase headcount in 2024), and costs are increasing at a faster pace — putting pressure on the bottom line. Consequently, most organizations are significantly increasing the pay-for-performance focus in their sales compensation plans.
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The survey findings are based on responses from more than 300 sales compensation leaders across business services, distribution, financial services, healthcare, life sciences, manufacturing, media, pharma, and technology.
Increasing Growth and Cost Pressures Lead to Profitability Focus
To successfully meet ambitious growth objectives, companies are planning for more than half of their sellers to reach their quotas and earn target incentives. Companies are also investing in their talent. Almost two-thirds plan to add headcount in 2024, the biggest increase since 2019.
Fewer companies are expecting headcount reductions (unlike this past year). Turnover is also expected to return to a normal rate below 10%. Finally, companies plan to spend more on sales compensation costs, which are expected to grow by more than 5% in 2024 (1.4x higher than compared to 2023).
To optimize the return on these investments, it is crucial to prioritize profitability and productivity. The sales compensation program provides a key lever to drive revenue growth at the right cost.
Leverage Pay-for-Performance Plans to Drive Strategic Goals
Lukewarm about last year’s sales compensation plan effectiveness, companies resolve to update next year’s plans. In fact, 91% of companies expect to update this year’s plan design. Why are they changing? To drive pay-for-performance and strategic goal alignment.
Two-thirds of companies have recently changed, or will change, their plans to drive more pay-for-performance. Best practices for designing these plans include linking business performance to rewards, driving individual accountability in the plan, aligning pay mix to the degree of persuasion, differentiating between top and bottom performers and motivating sellers to achieve higher performance levels.
As companies evolve their go-to-market strategies, they must align their sales compensation plans. Not surprisingly, the top plan design change reasons focus on driving alignment to strategic goals. The top three goals are:
- Greater focus on profitability
- Sales strategy shift
- New products or solutions
Additional factors include fixing broken/ineffective plan design elements, shifting a product/solution mix and changing the sales organization.
Sales Compensation Plan Challenges Still Exist
For sales compensation leaders, designing and managing the sales compensation program will continue to be challenging in 2024 and beyond. Many external factors will contribute to these challenges, including more complex business and go-to-market models, the rise of artificial intelligence, the evolving hybrid workplace model, as well as equity and transparency initiatives.
Sales compensation leaders cited the following challenges:
Top 3 Sales Compensation Plan Design Challenges
- Driving higher productivity
- Setting stretch but achievable goals
- Managing costs
Top 3 Sales Compensation Program Management Challenges
- Allocating the quotas/goals on time
- Managing uncontrollable external factors
- Obtaining accurate external pay survey data
The pressure to achieve ambitious growth targets, maximize returns from increased compensation costs and utilize performance-based incentives to drive strategic objectives will continue to be intense. However, the outcome could be exceptional for those willing to invest in building an effective governance model, crafting optimal sales compensation plans and leveraging a robust change management methodology.
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