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Aligning Sales Incentive Compensation with Desired Selling Behaviors

Independent research firm, CSO Insights, recently released its 2013 Sales Compensation & Performance Management study (http://www.csoinsights.com).  A total of 950 firms responded to the survey questionnaire that inquired about a wide range of topics related to sales compensation and practices associated with contributing to plan effectiveness.  In our opinion, sales compensation plan designers and functional leaders in Sales Operations, HR/Compensation, and Sales Finance will find this report a useful reference guide to many of the topics that must be considered when either tweaking or redesigning a sales compensation plan.

One of the study’s topics that attracted our attention is the behaviors that respondents indicate their compensation plans impact.  This is of particular interest to us because our experience shows that there is often misalignment between what management says is important and the results the compensation plan rewards.   The survey results from CSO’s last two surveys (2013, n=950; 2012, n=700) indicate respondents reported that selling behaviors impacted by compensation plans was as follows:

  • Selling to new accounts:  61.2% vs. 70.3%
  • Retaining existing business:  57.2% vs. 63.2%
  • Farm more from existing accounts:   44.6% vs. 56.5%
  • Selling new products:   42.8% vs. 46.9%
  • Cross-sell/up-sell:  42.4% vs. 53.1%

While some of the year over year variance may be explained by the increase in the survey sample size, the order of the top three behaviors remains unchanged.  Selling new products and cross-selling flipped places in terms of significance; however, they are in a virtual tie relative to participant response.   We suggest that companies keep in mind these findings when assessing the relative appropriateness of performance measures in their sales compensation plans.  For example, in keeping with our belief that three or four performance measures are optimal for most sales incentive compensation plans, CSO’s finding suggests to us that B2B companies should consider the following three incentive measures:

  • Total revenue (Revenue from existing business/existing accounts + new revenue)
  • New revenue (New accounts revenue and/or new product sales)
  • Placeholder for 3rd measure – for example, cross sell revenue in multi-division enterprise; or as more typically the case in recent year, a profit-oriented measure (either margin $ or %; selling higher margin products ranked sixth on the CSO survey list)