7 Ways to Ruin a Perfectly Good Sales Compensation Plan

February 28, 2014

If you are building out a new sales team it’s one of the first tough questions you have to address: “What kind of compensation package are we going to put into place?”
There’s no single right answer — every company will discover particular elements that do or don’t work for them. Unfortunately, for far too many companies, however, that discovery process can be long and include a few too many painful hard lessons-learned along the way.
It’s sales strategy consultant Michael Hanna‘s mission to help companies cut back on that costly trial-and-error period by properly addressing and preparing for all of the commonly overlooked compensation factors that can come into play.
Hanna recently shared his tips for Designing an Effective Sales Compensation Plan in a free OpenView webinar (see the slides and a full recording of the presentation). Here, he breaks down seven common mistakes to avoid that can really set a sales team up for failure.

7 Ways to Ruin a Perfectly Good Compensation Plan (Sales Compensation Mistakes to Avoid at All Costs)

1) Make it Complicated

If you really want to make your compensation plan a disaster, make sure it’s impossible to understand. Make it overly complicated by mapping out all the intricacies. Dive into detail around every possible scenario. Call out contingencies and really go deep into the weeds. Whatever you do, don’t make it so a rep can easily calculate their expected commission at any given point.

2) Don’t Align Your Comp Metrics with Your Overall Business Goals

Another way to make sure your plan isn’t actually going to drive productive behavior is by not putting any thought into how your plan’s goals are syncing up to your organization’s larger business goals. That’s a great way to inadvertently incentivize the wrong types of behavior that don’t contribute to getting your company where it really needs to go.

3) Design Your Plan Like a Contract

By all means, use your sales compensation plan as an opportunity to confuse, intimidate, and bore your sales reps to tears. Make it look like the fine print in a car commercial. Drafting it like a marketing asset will only serve to actually inspire and motivate your team.

4) Use Metrics You Can’t Accurately Track

Another fun thing you can try is basing your sales reps’ compensation on metrics that are difficult or impossible to track! Boy, is it great to watch as your plan quickly loses credibility and kills the collective motivation of your entire team. To accomplish that, shoot for metrics that are dynamic (something that changes over time like pipeline), estimated, subjective, or incomplete. Not only will your reps be frustrated, they’ll also waste time checking and fixing their commission statements. Double-win!

5) Make it Difficult for Reps to See Where They Stand

One of the worst things you could do if you’re shooting for an ineffective compensation plan is to provide a live dashboard so reps can see how they are performing and how close they are to quota at all times. Doing that will not only help motivate them, but also help notify managers of who needs help, and that is a ticket to success, not failure.

6) Don’t Take into Account Potential Staffing Challenges

Who likes having wiggle room to accommodate any unanticipated changes? Not you. Make your job and everyone else’s more difficult by refusing to take into account turnover, ramp-up time for new hires, and other potential challenges that are best planned for in advance.

7) Don’t Leave Any Room in Your Budget for Ad-Hoc Spiffs

By all means, paint yourself into a corner. Lock yourself into a plan with absolutely no room to launch a quick contest or campaign to compliment a product launch, win back a customer who suddenly churned, or help you catch-up when you find yourself underperforming. Flexibility is something baked into good sales compensation plans, and you obviously want this one to bomb.

Check Out the Webinars in Our Sales Prospecting Series

Michael HannaShow Me the Money: Sales Compensation Plans that Won’t Fail (Webinar)
Compensation plans are extremely powerful tools for influencing sales results — but only when done right. Sales strategy consultant Michael Hanna shares the keys to designing and implementing a sales compensation plan that keeps your team focused and motivated. Click here to watch.
kyle_porterTop 6 Free Sales Prospecting Tools You Need to Use
Want to take your sales and prospecting teams to the next level at no cost to your company? Join SalesLoft’s Kyle Porter as he shares the top free tools your sales team needs to use to boost your performance and increase your efficiency. Click here to watch.
Jeff HoffmanGetting Attention in 15 Seconds: How to Turn Any Cold Call into a Warm One
Struggling to get prospects to give you the time of day? In this webinar, renowned sales executive and entrepreneur Jeff Hoffman shares a simple cold calling structure that can dramatically warm up your prospecting efforts. Click here to watch.

Founder & Principal

Michael has led revenue operations at some of the world's fastest growing technology companies, including Shopify, Intuit, Clio and Eloqua (now Oracle Marketing Cloud). He is known for his ability to develop high-impact leaders, and align customer-facing teams to deliver sustainable revenue growth. Michael is happily married to Dana Hanna, his co-founder and wife of 23 years. They founded Hanna Strategy to help companies grow and leaders mature to their next level of impact. He offers coaching for Founders and Revenue Leaders, and consulting for B2B companies looking to systematize their revenue growth.