In many a post, I have presented a lot of info and asked a lot of questions around compensation.
My many-a-time rant tends to focus on retaining talent and fairness, and the sales rep’s ability to achieve quota and earn commissions.
But there is a problem in River City, and it doesn’t rhyme with “p”. It is in how incentives are being crafted.
Recently, I attended a webinar about Crafting Commission Structures sponsored by Datafox. The webinar had two presenters, one from Zendesk, the other from Salesforce. Both of them were in the position of crafting compensation plans for their sales people.
First, the positive parts of the webinar: It was brief, focused and insightful. The speakers were articulate and informed and presented well. As a matter of fact, they probably don’t even realize they said something which annoyed me!
What did they say? Without realizing it, they said compensation plans were crafted so only a percentage of the sales force achieved them.
Let me back up and explain. Research has shown selling compensation models, i.e. quota attainment models, are actually dis-incenting to sales people. In my observation, for highly paid technology sales people, the typical scenario is a sales rep achieves quota one month (or quarter/semi-annually/annually) and are then reset to zero starting with the new compensation period. It is a Sisyphean task: sell, sell, sell and then get set back to zero. Daniel Pink discussed in his book Drive and in an article for the Harvard Business Review how this type of sales methodology doesn’t use intrinsic motivation to reward the rep and actually can dis-incent the rep since they never achieve a true finish line. His analysis created a significant backlash from those who said (IMHO from an emotional perspective) he was wrong (see this example, a person whose living is made off crafting sales compensation).
There is some truth in the disagreement, and I don’t deny that. But where I see the problem lay is in the quota itself.
In the area of sales with which I’m most familiar, information security sales, the advertised On Target Earnings (OTE) for outside sales positions is usually north of $200k. While I know several reps who earn and have earned considerably higher than this, I also know several reps who haven’t made quota, and here is why I have an issue–the truth is they were never supposed to make quota.
Based upon the Zendesk Senior Sales Compensation Analyst,
Strategy & Planning, Caitlin Ferson, the expectation is that between 40-60% of sales reps will achieve quota. Her explanation is that with current OTEs hitting such high numbers, quotas are being designed with an (implicit) expectation of failure. Which means 60-40% of your sales reps WON’T achieve quota.
Does anyone see a problem here?
My mantra of “If the sales rep is making money then the company is making money” is based upon the idea that the company is compensating the rep FAIRLY. Planning for a sales rep to fail so that the company doesn’t have to pay them is, quite frankly, immoral.
The company should be planning fairly for salary + incentive = achievable target for earnings. If it isn’t achievable, then don’t advertise the position for hire.
A great compensation plan is one where the rep achieves quota, receives commissions, and the company earns revenue. Call it simplistic, but it works.
Thinks, Inc. is a consulting firm which specializes in Smart Sales Operations. If you’d like for us to come and assess your chaos, drop us a line at contact@thinks-inc.com