Harnessing Variable Pay and Incentive Compensation Management to Improve Sales Retention

Sales retention is an ongoing challenge that most sales managers deal with on a regular basis. Annual turnover estimates among salespeople in the US are as high as 27% - two times the average in the laborforce¹.   The most vulnerable group at risk for turnover remains the middle performers.  Companies tend to retain most of their star employees because they recognize them and put in special effort towards their retention. The below average performers are also less likely to leave due to minimal external opportunities. With enough middle performers leaving, it can be very damaging to achieving goals for an organization.  

Variable pay plays a very important part in sales retention. It not only incentivizes and rewards good results but also provides a means to challenge and keep all sales reps engaged. There can be other factors as well that may lead to sales attrition like moving along with an old mentor or manager or a personal life event. But these factors are too individualistic in nature. A successful strategy for sales retention should incorporate maximizing the effectiveness of variable pay plans.

Focussing on Effective Pay Plan Measures

As organizations continue to focus on developing effective sales team retention strategies there is a greater need to create variable pay plans that are aligned with both organizational goals and motivational benefits.  If you’re currently experiencing difficulties with your pay plans, Intangent recently created a compensation plan design guide to help you navigate the complexities of building the ideal plan.  You can download it here.  For a variable pay plan to be effective it is important to have the following attributes for the measures:

• Controllable
• Sales reps should have a clear line of sight to the measures and should have both the capacity and the understanding to achieve the measure.
• They should view the measure as attainable, even if they require a stretch to achieve
• Measurable
• The results against the measures should be determined consistently and effectively
• If the reps do not have visibility to how their results are credited, the plan will lose its effectiveness and as such the measures should not only be measurable, but the results should also be available to the reps.
• Aligned
• The measures should be aligned with the corporate and sales organization goals.
• The plan mechanics of each role may be different, but they should all align with the sales strategy of the organization.
• Easy to Understand
• The primary job of sales roles is to be out in the field building relationships or selling. If the plan measures are complicated and a rep cannot clearly visualize the impact of each sale on their incentive, then the measures lose their effectiveness.
• Too many measures also dilute a clear strategy for a plan and will add to confusion. As such, incentive plans should not have more than three or four measures.  

When Metrics and Motivation Align

It is important to focus on the execution of the variable pay plan as well as the design. Both sales reps and sales managers must have visibility into key performance indicators – sales reps to keep feeling challenged and motivated and sales managers to monitor trends and take corrective action before it’s too late.

This is where an incentive compensation system can add great value in sales retention strategies. An ICM system can provide the visibility to both a rep and a manager on how each sale impacts the overall performance and ultimately variable pay. Analysis of historical trends and forecasts not only arms reps with better insights to target their efforts, but also keeps them engaged and challenged throughout their journey. Sales is a never-ending journey, with each new target providing a reset point. Effective reporting keeps the uniqueness of each journey fresh, but also provides a bridge to link to any past history the rep may wish to re-visit.

Besides providing visibility into payment details, some of the key metrics that an Incentive Comp system make readily available include –

• Performance trends (historical/ pipeline)
• Scenario modeling for stretch targets
• Peer ranking
• Team performance

These data points provide strong tools to retain and motivate sales reps. However, relationships also play a strong role in sales and these data points need to be packaged with the right message and enablement to create a motivated and effective sales force.  In our previous blog post, David Monroe, VP of Sales at Intangent shared several strategies related to cultivating relationships within a sales organization and how they contribute to sales rep retention. Creating a winning culture built on trust and optimized using performance data will take time; the sooner you start, the sooner you will see results.