Once you hire your first sales person, you need to start thinking about sales compensation; add a team, multiple geographies, product lines, levels and the process quickly can get very complicated. Companies are challenged with how to get the decision makers aligned, scalability and the overall performance of the plan itself. This was the topic of discussion at our most recent CFO dinner “A Closer Look at Sales Comp”. We were joined by Richard Wong, VP of Finance at LinkedIn and Ely Lai, Sr. Global Sales Compensation Manager formerly of LinkedIn, now currently at DocuSign.
Both Rich and Ely had been at LinkedIn since 2010 and in those 6 years, the company has experienced hyper growth, which clearly impacts how a sales comp structure evolves. We have highlighted the discussion below, outlining three key strategies for scaling a successful sales compensation program.
1) FOCUS AND TRANSPARENCY
- The sales comp partnership is extremely important and it is smart to spend time upfront aligning with key stakeholders, in particular sales management, sales operations, finance and HR. Ensure that the plan 1) aligns with the business strategy 2) is financially feasible and 3) is equitable across participants. On top of that be sure the executive team is aligned with sales comp philosophy.
- Salespeople will behave based on these plans, so be aligned and be mindful of cultural impact. Ensure that your sales compensation philosophy is aligned with your corporate culture.
- Even with different business units, it is important to keep everything aligned. Make sure that you’re not accidentally creating a “better” sales compensation plan for a different sales org.
- Design incentive plans and what you want them to achieve. Reps will find the shortest route from A à B, so be sure you’re satisfied with the end point. Ask yourself the question, “If all my reps were to achieve their goal, would the company achieve its goal?” Transparency and communication is critical.
- Lastly, don’t worry about everything going your way because it won’t.
2) SIMPLICITY
- Plans should be simple. At LinkedIn, they targeted for less than 3 metrics (that was for the most complicated business unit). Ideally it is only 1 metric. reps then know how you want them to sell.
- Set a philosophy on quota attainment and be transparent about it. You want some people to fail and some people to succeed to weed out the bad and highlight the good. It’s generally a good rule of thumb to have 50% of people make their quotas.
- Some target 60% to achieve quota, but reality 40-50% did. In high growth companies, many of which were in the room, % drops down because of aggressive onramp of new sales.
- If too many people hit their quota, then incentive pay is no longer at risk. If too few people hit their quota, then you have a morale issue on your hands.
- Inspire the team and focus on motivation beyond just the numbers. Create legends out of top salespeople, build sales clubs are both valuable resources.
3) LEVERAGE TO SCALE
- Think about hiring someone to manage the sales compensation program around 100-200 sales paid participants. Many wait until 300-500 and it is too late. This person should be able scale 10x.
- Invest in an automation tool as it will make the calculations easier and auditable. More importantly, it will give your reps the ability to see what they will get paid prior to commission calculations saving you (and the rep) time fixing things after close.
- Standardize guidelines on what and when you are willing to change in the plan year (think quotas, open territories, etc) and hold tight to those guidelines. Nothing kills scalability like a bunch of one offs.
- Periodically look at plans and analyze and assess whether they are working the way that you thought they would.
3 Pitfalls to Sales Comp
Don’t forget about common pitfalls.
- Spiffs and Kickers: Used judiciously, they can be effective. But limit your use since they are like a drug. Sales people start expecting them and they really should only be used for short term incentives.
- Clear Communications: If people don’t understand how they are being paid, that is on you! People are going to sell how they are incentivized to sell. If they don’t know how they are getting paid, they’ll do what they want.
- Not Automating: You don’t want sales people spending time shadow accounting, you want them selling.