Companies that simplify their sales compensation processes -- rather than their sales compensation plans -- are outperforming their competition, according to recent research.
Compensating sales reps is becoming an increasingly complex area, especially with new sales methodologies, selling teams and a wider range of partners emerging to confuse the issue.
"What we're seeing is companies are tying their compensation to their strategic business initiatives and are moving away from paying sales reps a percentage of top line revenue," said Gretchen Duhaime, senior research analyst for customer management technology at Boston-based Aberdeen Group. "As the numbers of products and services and market pressures become more complex, measures to align sales mirror that complexity."
Many organizations are turning to software for help. According to Stamford, Conn.-based Gartner Inc., the market for sales compensation software is growing 15% year over year.
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Aberdeen surveyed more than 130 companies to determine the strategies, capabilities and enablers that best-in-class firms are using to improve sales productivity and effectively manage compensation plans.
Best in class, as defined by Aberdeen, means that organizations showed a 90% improved plan alignment with strategic goals, 70% improved payment accuracy, 45% improved sales force annual turnover, and 41% improved sales force non-selling time. Those that managed it had a few differentiators -- they managed their compensation plans and used analytics to support management decisions.
"We recommend that plan design be automated, especially for companies [that] already have payment information in place, which is something many survey respondents don't know existed," Duhaime said.
According to the survey, many organizations feel pressure to reduce the burden on their administrative staff charged with calculating commissions, distributing statements and answering questions. And many sales reps, ever eager to find out how much they've earned for the month, spend their time doing "shadow accounting" and trying to figure out their income. An automated system can get them back to the business of selling, Duhaime said.
"Best-in-class companies spend 35% less time on answering commission questions," she said. "Get the sales force the information they need to figure out what they're getting paid, and [they] can spend more time selling."
Despite the emergence of a number of sales compensation management software applications, a majority of the top performers are still using manual spreadsheets to track their plans. According to the survey, however, 90% will have made the transition to a new application within the next year. Best-in-class organizations are also far more likely to be able to display commission information within their CRM systems.
Aberdeen offers a number of recommendations for companies seeking to improve their sales compensation plans.
Those operating below average performance should:
- Define and measure their key metrics.
- Implement process controls to ensure payment accuracy.
Streamline compensation plan design.
Industry average firms should:
- Provide commission forecasting to the sales force.
- Empower the sales force with commission payment information to help reduce the number of queries to accounting departments.
Centralize compensation management function.
Best-in-class companies seeking to improve should:
- Automate compensation plan design.
- Consider adding non-cash reward programs to the compensation mix.
- Implement analytics to support management decision making.